Determinants of the asymmetric gold market

Transcription

1 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 Aposolos Kiohos (Greece), Nikolaos Sariannidis (Greece) Deerminans of he asymmeric gold marke Absrac The purpose of his paper is o explore in he shorrun he effecs of energy (crude oil) and financial (equiy, currency and bond) markes on he gold marke. A GJR-GARCH model is used o es hese relaionships for he period from January, 999 o Augus 3, 009 using daily daa. The resuls sugges ha he energy marke posiively influences he gold marke. There is also evidence ha he equiy, currency and bond markes exer negaive impac on he gold marke. A possible explanaion for his relaionship is he way ha he gold marke funcions as a mobilizaion facor of hedge agains porfolio and geopoliical risks. Furhermore, he resuls show ha he volailiy of he U.S. dollar/yen exchange rae influences significanly he volailiy of he gold marke. Addiionally, he auhors found indicaions of volailiy persisence in he gold marke. Finally, he srucural analysis of gold marke volailiy showed, a leas in he shorrun, ha he volailiy is no only asymmeric bu i also ends o overac in response o posiive shocks, conrary o he equiy markes, since in imes of marke sress or urmoil he increased volailiy from oher markes is ransmied o he gold marke which acs as a safe haven. Keywords: GJR-GARCH model, gold fuures, crude oil, equiy marke, exchange raes, bond marke. JEL Classificaion: F39, G0, G5. Inroducion Gold invesmen marke has highly grown worldwide in he las seven years. Many invesors end o have a proporion of gold in heir porfolios due o he fac ha he price of gold is expeced o rise in line wih inflaion and ac as an inflaion hedge (Levin and Wrigh, 006). In general, during periods of poliical and economic uncerainy, invesors end o purchase gold and gold relaed insrumens as a sore of value, as a diversificaion ool and as proecion from sock and currency shocks and from he new complex off-balance-shee invesmens which someimes are no in ransparency. According o he World Gold Council (006b), cenral banks hold gold reserves since gold provides economical safey. Currencies are prone o bad decisions made by governmens and heir value changes accordingly. The price of gold is unaffeced by hese decisions. Hisory has shown ha many counries frequenly impose exchange conrols affecing he free ransfer of heir currencies or, in he wors case, hey freeze he oal asse, in an aemp o preven oher counries accessing heir cash or securiies. War, hyperinflaion, worldwide currency crisis or any oher major crisis could lead o full or parial collapse of he presen sysem. In his case, gold acs as an opion for uncerain fuure. This paper examines for he firs ime he impac on gold prices, in he shorrun (day by day), in relaion o four facors such as energy, equiy (sock), exchange rae and bond. More specifically, we propose o analyze he implicaions of he Generalized Auoregressive Condiional Heeroskedasiciy model developed by Glosen, Jagannahan and Runkle Aposolos Kiohos, Nikolaos Sariannidis, (993) on gold fuure prices wihin a new empirical modeling framework of he inernaionalizaion and inegraion of he above menioned markes. The scope of his paper is o address he gap in he lieraure in his area by conducing an in-deph analysis of he energy, equiy, currency and bond marke spillovers effecs on gold marke. Specifically, he conribuion of his paper is wofold. Firs, i uses recen daa on he gold marke and ess for he spillover effec of specific financial deerminans on is price and volailiy for he firs ime. Secondly, i conribues o he lieraure on his imporan relaion by showing ha he condiional variance of gold fuure prices appears o be more volaile in response o posiive shocks han o negaive ones, conrary o he equiies marke. In our model, he gold marke is very well represened by he gold fuure prices (i.e. GC Gold 00 Troy Oz. COMEX). The variables ha were finally esed as parameers which deermine he gold fuure price are he CL Crude Oil Ligh Swee index, he S&P 500 Sock index, he exchange rae of he U.S. dollar/yen, and he TNX 0-Year Treasury Noe. This paper is srucured as follows. Secion presens an overview of he exising relevan lieraure. Secion displays he mehodological consideraions. The following Secion describes he daa used. Secion 4 exposes he economeric mehodology and presens he empirical findings.. Lieraure review There are many facors ha conribue o he formaion of he gold fuures price saisical momens. Specifically, indusrial use, jewelry use, invesmen use and purchases by he cenral banks are facors ha affec he demand of gold (Levin and Wrigh,

2 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, ), while he supply is influenced by he quaniy being exraced from gold mines, he refining of recycled gold, he curren marke price of gold and he ineres raes (Levin and Wrigh, 006; Elfakhani e al., 009). However, facors like he indusrial and jewelry use, he quaniy being exraced from gold mines and he refining of recycled gold generally occur slowly and, hus shor-erm price movemens are rarely driven by eiher of hese phenomena. In addiion, he role of cenral banks in marke inervenions has recenly been diminished. Prior o he Washingon Agreemen on Gold Sales in 999, cenral banks bough and sold large quaniies of gold affecing is price as well. On he conrary, gold prices seem o respond rapidly o acual and anicipaed changes in financial condiions as gold exchange raded funds (ETF) and non-commercial speculaors have seadily increased heir aciviies. In his research, we idenify four main significan deerminans ha affec gold price and is volailiy: he energy marke, he equiy marke, he bond marke and he currency marke. A general reason why hese markes affec he gold marke, apar from he specific facors ha implied by he relaive economics of gold, is he inegraion of financial markes, paricularly in he las decade. The inernaionalizaion of economies has led gold, sock, energy, currency and bond markes o become more and more popular and easily accessed (hrough he developmen of he Inerne echnologies and he increasing populariy of elecronic markes exchanges) while i has increased heir inerdependence. Accessibiliy of financial insrumens for foreign capial has become a realiy in he above markes, even for invesors wih a small capial. Hence, he inegraion of he markes has been induced since anyone can paricipae in rading a hose markes, even wih a small deposi fund. In addiion, world rade has become more liberalized, and he role of governmens in marke inervenions has been diminished, while several major counries (China, he Former Sovie Union and Easern Europe) have undergone significan economic resrucuring. Consequenly, he dynamic ineracion of hese facors has provoked he financial invesors o buil invesmen sraegies using progressively more gold in heir porfolios. Gold is said o be uncorrelaed or negaively correlaed wih oher ypes of asses, which is an imporan feaure in he conex of inernalizaion of markes in which correlaions increased dramaically among mos asse ypes. Acually, many sudies have shown ha gold is good hedge in radiional invesmen porfolios and could be considered as an alernaive approach (Jaffee, 989; Ciner, 00; Capie e al., 005). Furhermore, gold plays an imporan role as a sore of value and a safe haven invesmen especially in imes of poliical and economic uncerainy (Baur and McDermo, 00). Regarding he effecs of oil prices o gold marke, hey influence he cos of producion of goods and services, a fac ha predics he fuure of he oher indusries and also affecs he profi margins. Liao and Chen (008) found ha oil affecs he gold prices. Addiionally, oil prices influence he financial markes since anicipaed changes in economic aciviy, in corporae earnings, in inflaion and in moneary policy follow he oil price flucuaions. Cunadoa and Gracia (005) and LeBlanc and Chinn (004) have argued ha oil prices have significan impacs on he inflaion raes, while Abken (980) and Kolluri (987) claimed ha inflaion influences gold prices wih posiive correlaion. Moreover, he oil and gold prices are ofen considered inerconneced in a cause and effec relaionship hrough heir link o inflaion. Specifically, inflaion follows he same direcion of oil prices and gold has been considered as a good inflaion hedge ool. In oher words, he increase of crude oil price ofen provokes inflaionary pressures and since gold is regarded as a more secure way for soring wealh, he demand of gold and, hence, is price is anicipaed o increase. Neverheless, despie he imporance of he relaionship beween oil and gold prices for invesors and consulans, sudies relevan o his issue are relaively scarce (Zhang and Wei, 00). Taking all he above menioned lieraure ino consideraion, he model of his paper uses he CL Crude Oil Ligh Swee index o esimae he shorrun energy marke influence o gold marke. On he oher hand, he effec of equiy markes on he gold marke could be considered paricularly imporan in he process of defining porfolios, evaluaing, racking and sudying porfolio performance. According o Tully and Lucey (007), gold funcions radiionally as a hedge for socks and responds wih higher prices during equiy marke crashes. Johnson and Soenen (997) came o similar conclusions claiming ha gold is an aracive invesmen in erms of diversificaion only in specific periods of equiy urmoil. Hiller e al. (006) sudied he role of gold and commodiies on equiy markes. They discovered ha in he period of gold had a small negaive correlaion wih S&P 500 index. They found ha porfolios which had 5% o 0% in gold performed beer han porfolios wihou gold. Jaffe (989) proved ha he low correlaion of gold wih equiies grans i a place in a well 7

3 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 diversified porfolio. Smih (00) also concluded ha afer he Sepember, 00 erroris aack, he prices of U.K. equiies have fallen whereas he price of gold has risen. However, gold has recenly been used in combinaion wih equiies as a useful ool no only for diversificaion purposes bu also for he developmen of speculaive invesmen sraegies. Baen e al. (00) found ha, for he period of , he S&P 500 index price is more imporan for gold price movemens han moneary variables such as he U.S. Consumer Price index and he moneary aggregae M. In addiion, many porfolio managers use he equiy/gold raio as a measure of corporae marke value versus a decades-long measure of real asse value. In his conex, we examine he hypohesis ha equiies play a significan role in he formaion of gold prices a all imes. The S&P 500 index has been used in our model as a proxy for he world equiy markes. The S&P 500 is he index of he larges economy in he world which predics he fuure of oher economies. As far as he exchange rae marke is concerned, i has long been hough ha gold was a good proecion agains flucuaions in he U.S. dollar, he world s main rading currency. The movemens of he U.S. dollar and specifically he dollar depreciaion and he relaed risk of furher devaluaion probably srenghen invesor demand for gold affecing is price as well. Baker and Van-Tassel (985) in heir sudy on he gold price provide evidence suggesing ha U.S. variables, such as U.S. dollar, drive he price of gold. Kaufman and Winers (989), as well as Sjaasad and Scacciavillani (996), also assered ha he gold marke was influenced by he U.S. dollar and ha foreign exchange raes of major currencies have been a significan source of price insabiliy in he world gold marke. The level of he U.S. dollar is a deerminan for he gold price (Baker and Van-Tassel, 985; Elfakhani e al., 009). Moreover, Capie e al. (005) examined one aspec of he second role of gold, as a hedge agains he U.S. dollar. Using daa from 97 o 00, hey applied a variey of saisical echniques o explore he relaionships beween gold and he exchange raes of various currencies agains he U.S. dollar, paying paricular aenion o he hedging properies of gold in episodes of economic or poliical urmoil. The gold price was found o move in opposiion o he U.S. dollar and he movemen was essenially conemporaneous. Furhermore, in his sudy examining he shor-run spillover effec of U.S. dollar/yen exchange rae on gold mean and condiional volailiy we have also aken ino accoun financial facors like he carry rade (invesors borrow lowyielding currencies and lend/inves in high-yielding currencies) because his effec is likely o play a more vial role o he formaion of spillover effecs in he general conex of invesmen porfolio managemen. Overall his approach suggess he use of U.S. dollar/yen exchange rae as a proxy for he effecs of exchange rae on gold prices in order o have more informaive and measurable resuls. Specifically, we have used he U.S. dollar/yen exchange rae for a number of reasons. Firs of all, he U.S. dollar is he bigges raded invoice currency, so i is considered as he predominan currency (McKinnon and Schnabl, 00). Furhermore, he majoriy of currency reserve is in U.S. dollars and, hence, he variabiliy of he U.S. dollar could disurb he economic environmen. Moreover, he major proporion of he globally raded and quoed is in U.S. dollars. In addiion, he yen is one of he major currencies of carrying rade and as gold has been included in he modern porfolio sraegies, he level of he yen in relaion o he U.S. dollar is probably a crucial facor o gold marke. Finally, he imporance of bonds in he formaion of gold prices could be explained no only by heir involvemen in he modern porfolio managemen bu also hrough he role of ineres raes in economy. More specifically, ineres raes affec he level of invesmens in he economy and are considered o be a measuremen of he borrowing cos. When he rend of ineres raes is increasing, he financial environmen is more insecure, which can even lead o bankrupcies (Bauisa, 003). In his conex, asses like gold could be considered as safe havens resuling in a rush o buy hem. On he oher hand, when ineres raes decrease, invesors operae in a sable environmen where unexpeced negaive condiions are limied forcing invesors o change gold ino more risky asses. Kousoyiannis (983), Cai e al., (00) and Hammoudeh and Yuan (008) have argued ha ineres raes flucuaions affec gold prices. In his paper, he 0-Year Treasury Noe has been used as a proxy for he wofold role of bonds, being an asse in invesmen porfolios, as well as a ool relaed o he prevailing ineres. We mus poin ou ha we have used his paricular bond issued by he U.S. Treasury since he U.S economy is regarded as leading economy and plays a subsanial role o all economies. For example, a change in he U.S ineres rae usually causes as a consequence no only he change in he ineres rae policy of developed economies, bu also in he evaluaion of general business risk globally.. Mehodological consideraions There are some special characerisics in he financial price/reurn ime series which define hem. Therefore, here are paricular mehodologies and 8

4 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 economeric echniques ha have been developed for he analysis of hese characerisics. An imporan feaure of he disribuion of he reurns is ha i ends o be lepokuric wih fa ails compared wih he normal disribuion (Fama, 963; 965). Anoher feaure of financial reurns, mainly equiy reurns, is he leverage effec, a phenomenon o which asymmeries are aribued (Black, 976; Chrisie, 98). Black conneced operaing and financial leverage wih volailiy, while Chrisie, as well as many oher researchers afer him, suggesed ha only financial leverage was conneced o volailiy. Neverheless, he effec of leverage on he marke volailiy is quesioned by many researchers. Braun e al. (99), and Campbell and Henshel (99) added ha he expecaion of greaer volailiy increases he required rae of reurn due o increased risk premium, resuling o a decrease of he relaive price. This heory is repored in he lieraure as he volailiy feedback hypohesis. Ohers, like Bekaer and Wu (000), examined he validiy of boh heories. In heir sudy on he Japanese sock marke, hey employed a mulivariae GARCH model including variables o conrol boh heories and concluded ha asymmeries are observed due o he volailiy feedback. The hird imporan feaure of financial reurns is he volailiy clusering, which appears when here is a endency of larger changes in sock reurn prices following large changes, and smaller changes following small changes (Kyle, 985). Finally, anoher imporan feaure of daily and squared daily reurn series is he auocorrelaion srucure of he series, which means ha volailiy is persisen over ime (Akgiray, 989). The Auoregressive Condiional Heeroskedasiciy (ARCH) model inroduced by Engle (98) and is exension o he Generalized Auoregressive Condiional Heeroskedasiciy (GARCH) model (Bollerslev, 986) allow he fa ails which are ofen observed in financial disribuions and impose an auoregressive srucure on he condiional variance. Therefore, hey are capable of capuring no only he volailiy persisence of reurn series over ime, bu also he volailiy clusering as well. An imporan weakness of he ARCH and GARCH model, hough, is ha hey accoun for he volailiy reacions in posiive and negaive changes (shocks) in a symmeric way. A soluion was given by he asymmeric models which are capable of capuring he asymmeric feaures of he daa. According o Engle and Ng (993), who analyzed various models for he daily Japanese sock reurns, he bes parameric model is he GJR-GARCH, inroduced by Glosen e al. (993). The diagnosic ess hey applied provided evidence ha alhough he EGARCH model, inroduced by Nelson (99), can also capure mos of he asymmery, i expresses he variabiliy of he condiional variance in a higher han normal level. Anoher advanage of he GJR- GARCH model is ha i has fewer parameers o be esimaed. The GJR model is a simple exension of he GARCH model accouning for any asymmeries involved. Saisically, asymmery occurs when an unexpeced drop in price due o bad news increases volailiy more han an unexpeced increase in price due o good news of similar magniude. This model expresses he condiional variance of a given variable as a nonlinear funcion of is own pas values of sandardized innovaions. The esimaion of GJR- GARCH model involves he join esimaion of a mean and condiional variance equaion. The GJR- GARCH (,) model is saed as follows: The mean equaion is: Y = X + u, () where, X is a vecor of exogenous variables. The condiional variance equaion is: a a a u a S u, () 0 3 where u GED(0, ), i is assumed o follow he GED (Generalized Error Disribuion). We employ he GED because of is abiliy o accommodae lepokurosis. Also, S if u - < 0, S 0 elsewhere. The leverage effec occurs when 3 > 0. The condiion for a non-negaive variance requires ha 0 0, 0, 0, + 3 > 0. When R R 0, hen u < 0, which means ha he observed reurn R is less han he esimaed reurn (in oher words, he mean reurn). Consequenly, when S is equal o, he negaive change u a ime correlaes wih he volailiy a ime. In his model, he good news (u > 0) relaed o he bad news (u < 0) has a differen effec on he condiional variance. If u > 0, i implies ha a ime we had good news, which had a posiive effec on he reurn (over he mean reurn), and his is why he residual is posiive. Good news reflecs on he coefficien ( 3 absorbs he effec of he bad news). However, bad news has an effec on + 3, because if S, hen he equaion () becomes: a a 0 ( a a a u a ) u 3. ( a u 3 * ) a 0 (3) 9

5 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 When 3 > 0, we have he leverage effec, which means ha bad news has a greaer effec on condiional volailiy. When 3 0, we simply sae ha he effec of news is asymmerical. 3. Daa Concerning he empirical analysis, daily observaions of he GC Gold 00 Troy Oz. COMEX (Gold), he CL Crude Oil Ligh Swee index (Crude), he S&P 500 Sock index (SP), he TNX 0-Year Treasury Noe (Bond) and he U.S. dollar/yen exchange rae (D/Y) have been used. The sample covers he period from January, 999 o Augus 3, 009. These daa have been obained hrough he Reuers DaaLink daabase of he Thomson Reuers Company. Moreover, he preliminary analysis of he above series has revealed ha he daily squared reurns of he U.S. dollar/yen exchange rae affecs he volailiy series of he Gold. I should also be noed ha a he % significance level, he hypohesis ha he mean reurn of he U.S. dollar/yen exchange rae reurns is equal o zero was no rejeced, which implies ha daily volailiy of he U.S. dollar/yen influences he volailiy of gold reurns. Therefore, he squared reurns of he U.S. dollar/yen exchange rae were used as a proxy variable for he volailiy of he U.S. dollar/yen exchange rae. Table. Sample saisics Daily coninuously compounded reurns for he seleced daa are calculaed as R = 00*log (p /p - ), where R and p are he daily reurns and prices, respecively. 4. Mehodology and empirical findings Table presens he summary saisics for he Gold, Crude oil, S&P 500, Bond and dollar/yen reurn ime series. The sample mean reurns of hese series are close o zero and we canno rejec he null hypohesis ha he mean reurns are no saisically differen from zero. Also, by using he Jarque-Bera (JB) saisics, we came up o he conclusion ha essenial deparures from normaliy occur while he series are slighly asymmeric, excep he one of bond, and lepokuric. Moreover, he augmened Dickey-Fuller (ADF) es, allowing for boh an inercep and a ime rend, showed ha he sample series had been produced by saionary series. Table shows he sample auocorrelaion funcion (ACF) and parial auocorrelaion funcion (PACF) for daily reurns and squared daily reurns of Gold ime series. I can be observed ha he Ljung-Box saisics show an auocorrelaion on daily reurns and srong auocorrelaions in he squared daily reurns, indicaing condiional heeroskedasiciy (Bollerslev, 987). Saisics Gold Crude SP Bond D/y Observaions Mean Sd. dev Skewness Kurosis Jarque-Bera Augmened Dickey-Fuller (ADF) Table. Tes for serial dependence in firs and second momens of gold variable Reurns Squared reurns Lags Auocorrelaion Parial correlaion LB(n) Lags Auocorrelaion Parial correlaion LB(n) Noes: LB(n) are he n-lag Ljung-Box saisics for Gold, and Gold respecively. LB(n) follows chi-square disribuion wih n degree of freedom; he sample period conains 67 daily reurns. 30

6 Summarizing all hese, i is observed ha he Gold reurn ime series is bes described by an uncondiional lepokuric disribuion and possesses significan condiional heeroskedasiciy. This renders he ARCH models as a very good choice for modeling he Gold reurn ime series. The preliminary saisical resuls and he applicaion of he LR es on he GARCH(p,q) model demonsraed he final specificaion for he esimaion of he mean and volailiy for he Gold reurn ime series. The specificaion is (mean equaion): Gold b b Crude b3sp b4 D / Y (4) b5bond u. Variance equaion: a0 a au a3s u (5) a ( D / Y ). 4 u GED(0, ). Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 Diagnosic ess were performed o esablish goodness of fi and appropriaeness of he model. Firs, i was examined wheher he sandardized residuals and squared sandardized residuals of he esimaed model were free from serial correlaion. As we can see in Table 3, he LB(n) saisics for sandardized residuals are no saisically significan and he LB(n) saisics for sandardized squared residuals show ha he ARCH effec has disappeared. The ARCH LM Tes concerning four lags in he residuals (N*R = 6.) verifies ha we do no need o encompass a higher order ARCH process. Furhermore, he coefficien esimaion v =. for ail hickness regulaor wih sandard error, confirms he perinence of he GED assumpion. Specifically, he assumpion of normal disribuion is rejeced, a fac ha verifies he heory for hick ails in he sock reurns. An LR es of he resricion v = (for v = he GED is essenially he normal disribuion) agains he unresriced models clearly suppors his conclusion. Table 3. Diagnosics on sandardized and squared sandardized residuals Residuals Squared residuals Lags Auocorrelaion Parial correlaion LB(n) Lags Auocorrelaion Parial correlaion LB(n) Noes: LB(n) are he n-lag Ljung-Box saisics for he residual series. LB(n) follows chi-square variable wih n degree of freedom; he series of residual conains 67 elemens. Table 4 presens he resuls for he mean equaions. The saisical significance of he b coefficien indicaes ha he energy marke exer posiive effec on he condiional mean reurn of he gold variable, while he saisical significance and he sign of he b 3, b 4 and b 5 coefficiens suggess ha he capial, currency and bond markes, respecively, affec he gold marke negaively. In Table 5, he resuls for he variance equaion are presened. We observe ha he value of he coefficien (0.938), which reflecs he influence of, is much higher han he value of he coefficien (0.0755), which correlaes he price variaion of he presen day o he price variaion of he previous day. This resuls in he volailiy of gold fuures reurns being persisen over ime and, consequenly, he volailiy shocks (informaion) are slowly assimilaed o he gold marke. Furhermore, he saisical significance of he a 4 indicaes ha he shocks of he dollar/yen exchange rae reurns negaively affec he condiional volailiy of he gold reurn ime series. Finally, he coefficien a 3, which allows he condiional variance o asymmerically respond o posiive and negaive shocks, suggess ha here is a saisically significan negaive asymmeric effec. This implies, conrary o he equiy markes, ha posiive shocks provoke a larger response han negaive shocks of equal magniude. The price of gold normally rises as a resul of increased hedging posiions afer marke sress or urmoil. Therefore, posiive changes in he price of gold are associaed wih negaive financial news which means ha he volailiy is ransmied from he oher markes o he gold marke leading o an increased volailiy. 3

7 Invesmen Managemen and Financial Innovaions, Volume 7, Issue 4, 00 Gold b 3 4 b b Table 4. Mean equaions D / Y b5bond u Crude b SP b b b3 b4 b * * ** *** ( ) (0.0065) (0.033) (0.04) ( ) Noes: Sandards errors are shown in parenheses. *indicaes saisical significance a he % level. **indicaes saisical significance a he 5% level. ***indicaes saisical significance a he 0% level. a 0 a Table 5. Variance equaions a u 3 a S u 3 a 4( D/ Y) a0 a a a3 a4 8.64E-07*** 0.938* * * ** (5.04E-07) ( ) (0.033) (0.043) ( ) Noes: Sandards errors are shown in parenheses. *indicaes saisical significance a he % level. **indicaes saisical significance a he 5% level. ***indicaes saisical significance a he 0% level. Conclusion This paper examined he role of financial facors in he gold marke using a GJR-GARCH model. More specifically, we have examined he influence of he Crude Oil Ligh Swee index, S&P 500 Sock index, he U.S. dollar/yen exchange rae and he TNX 0- Year Treasury Noe on he gold fuure price. The empirical resuls show ha he firs deerminan References facor, he crude oil, reflecs a posiive ransmission effec from he leading energy marke o he gold marke. The imporance of hese spillover effecs reflecs, o a large exen, he world economic aciviy. On he oher hand, he S&P 500 Sock index, he U.S. dollar/yen exchange rae and he TNX 0-Year Treasury Noe influence negaively he gold marke no only because gold is a hedge agains economic or poliical urmoil, bu also because i offers alernaive approaches in porfolio managemen. Furhermore, he srucural analysis of volailiy showed ha he impac of old news on condiional volailiy was higher han ha of he curren news. In addiion, he volailiy of he U.S. dollar/yen exchange rae reurns exers significan influence on he condiional variance of he gold series. Finally, he resuls have shown ha he volailiy of he gold marke ends o overac in response o posiive shocks conrary o he equiy markes. The explanaion of his empirical fac is ha in imes of marke sress or urmoil he increased volailiy from he oher markes is ransmied o he gold marke which acs as a safe haven. This empirical evidence of our sudy suggess ha he role of gold in a porfolio invesmen is beneficial, since he increased volailiy of gold enhances he useful negaive correlaion of gold wih oher markes. The increased price and posiive shocks of gold as a financial insrumen proecs agains declining movemens in he price of oher asses.. Abken P.A. The Economics of Gold Price Movemens // Wall Sree Journal, pp Aggarwal R. Gold Markes, In: Newman P., Milgae M., Eawell J. (eds.). The New Palgrave Dicionary of Money and Finance. Basingsoke: Macmillan, 99. pp Akgiray V. Condiional Heeroskedasiciy in Time Series of Sock Reurns: Evidence and Forecass // Journal of Business, (). pp Baker, S.A., R.C. Van-Tassel. Forecasing he Price of Gold: A Fundamenalis Approach // Alanic Economic Journal, (4). pp Baen J.A., C. Ciner, B.M. Lucey. The Macroeconomic Deerminans of Volailiy in Precious Meals Markes // Recourses Policy, Baur D.G., T.K. McDermo. Is Gold a Safe Haven? Inernaional Evidence // Journal of Banking and Finance, (8). pp Bauisa C.C. Ineres rae Exchange rae Dynamics in he Philippines: a DCC Analysis // Applied Economics Leers, (). pp Bekaer G., G. Wu. Asymmeric Volailiy and Risk in Equiy Marke // Review of Financial Sudies, pp Bernard J.T., L. Khala, M. Kichian, S. McMahon. Forecasing Commodiy Prices: Garch, Jumps and Mean Reversion // Working Paper, Bank of Canada, Black F. Noise // Journal of Finance, pp Bollerslev. Generalized Auoregressive Condiional Heeroskedasiciy // Journal of Economerics, pp Braun P.A., D.B. Nelson, A.M. Sunier. Good News, Bad News, Volailiy and Beas // Journal of Finance, pp Cai J., Y.L. Cheung, M.C.S. Wong. Wha Moves he Gold Marke? // Journal of Fuures Markes, 00. (3). pp Campbell J., L. Henschel. No News Is Good News // Journal of Financial Economics, pp

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