Gold Market and Selected Stock Markets–Granger Causality Analysis

Abstract

The aim of the paper was to examine the bidirectional linkages between gold returns and stock indices returns. Four indices were considered (S&P500, NIKKEI, DAX, WIG). To achieve this goal, the augmented Dickey–Fuller test (ADF), Engle–Granger, and Johansen cointegration tests were applied. On the basis of the vector autoregressive (VAR) model, the Granger causality test was carried out to investigate causality between the analyzed time series. In this context, the following study hypothesis was formulated: Rates of return on stock markets were the Granger cause of the rates of return on the gold market. The research covered the period between January 1, 1997, and March 31, 2018, and two subperiods (bull and bear markets). The comparison of results for alternative VAR models estimated by employing daily and monthly data was presented. Studies for daily data have shown that feedback Granger causality appeared in four cases and the unidirectional causality was identified in eight cases. Referring to monthly data, no evidence of feedback causality was found. The unidirectional causality was present in five cases.