Investigating Correlation and Volatility Transmission among Equity, Gold, Oil and Foreign Exchange

Authors

  • Lukas U. M. Hein Maastricht University School of Business and Economics

DOI:

https://doi.org/10.26481/marble.2015.v2.99

Abstract

The paper offers an investigation into the co-movement between the returns of the S&P 500 stock index, the price of gold, West Texas Intermediate crude oil and the exchange rate of the Swiss Franc to the US Dollar. The research finds significant evidence for a correlation between the returns of the time series as well as their volatilities. The input values for these volatilities is a univariate GARCH(1,1) process for each of the time series. Are more detailed insight into the correlations is provided by a dynamic conditional correlation model on each pair of assets. There is enough significant evidence to suggest that the returns are correlated and there is volatility transmission between the assets. Further, the fact that volatility and correlation can be modeled suggests they can also be forecasted. In combination this knowledge is crucial in areas of risk management, portfolio management or even speculation on volatility indices. 

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Published

2015-06-02