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J. Risk Financial Manag. 2019, 12(1), 33; https://doi.org/10.3390/jrfm12010033

Clarifying the Response of Gold Return to Financial Indicators: An Empirical Comparative Analysis Using Ordinary Least Squares, Robust and Quantile Regressions

Japan Center for Economic Research, 1-3-7, Otemachi, Chiyoda-ku, Tokyo 100-8066, Japan
Received: 17 December 2018 / Revised: 31 January 2019 / Accepted: 7 February 2019 / Published: 14 February 2019
(This article belongs to the Special Issue Empirical Finance)
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Abstract

In this study, I apply a quantile regression model to investigate how gold returns respond to changes in various financial indicators. The model quantifies the asymmetric response of gold return in the tails of the distribution based on weekly data over the past 30 years. I conducted a statistical test that allows for multiple structural changes and find that the relationship between gold return and some key financial indicators changed three times throughout the sample period. According to my empirical analysis of the whole sample period, I find that: (1) the gold return rises significantly if stock returns fall sharply; (2) it rises as the stock market volatility increases; (3) it also rises when general financial market conditions tighten; (4) gold and crude oil prices generally move toward the same direction; and (5) gold and the US dollar have an almost constant negative correlation. Looking at each sample period, (1) and (2) are remarkable in the period covering the global financial crisis (GFC), suggesting that investors divested from stocks as a risky asset. On the other hand, (3) is a phenomenon observed during the sample period after the GFC, suggesting that it reflects investors’ behavior of flight to quality. View Full-Text
Keywords: gold return; asymmetric dependence; financial market stress; robust regression; quantile regression; structural break; flight to quality gold return; asymmetric dependence; financial market stress; robust regression; quantile regression; structural break; flight to quality
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Miyazaki, T. Clarifying the Response of Gold Return to Financial Indicators: An Empirical Comparative Analysis Using Ordinary Least Squares, Robust and Quantile Regressions. J. Risk Financial Manag. 2019, 12, 33.

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