LINKAGE BETWEEN GOLD AND STOCK RETURN: EVIDENCE FROM NONLINEAR CAUSALITY AND ROLLING WINDOW VOLATILITY SPILLOVER

Abstract

This paper investigates nonlinear causality relationship between gold and stock return in the USA for the period of December 1969-November 2021. The nonlinearity is detected in both series, and nonlinear unit root tests are applied for each variable. It is seen that both return series are nonlinear stationary according to whole nonlinear unit root findings. There is unidirectional nonlinear Granger causality from stock to gold return in all lags, except lag three, whereas there is unidirectional nonlinear Granger causality from gold to stock return just in lag three. So, this finding reflects safe haven seeking of investors between gold and stock markets. Moreover, causality findings of volatility spillover display that causal link is from gold to stock return before 2000, and shift direction after 2000. Meanwhile, rolling window spillover causality is employed from beginning to ending period in 120 month fixed range of consecutive movement. It is attained that bidirectional reciprocal causality exists and mainly present at the fixed periods among December 1999-January 2015, mirror financial crisis impact.