ANALYSING DYNAMIC DEPENDENCE BETWEEN GOLD AND STOCK RETURNS: EVIDENCE USING STOCHASTIC AND FULL-RANG ETAIL DEPENDENCE COPULA MODELS

Abstract

In this paper, we apply a battery of stochastic copulas to determine the tail distribution and contagion risk-sharing relationship between eight stock markets and gold returns.We find evidence of a significant co-jump of gold and stock market returns.This is in sharp contrast to the safe-haven and diversification attributes of gold. We assume that different stock markets may have sectoral compositions that weigh certain commodities higher, gold in particular, and that investor attitudes may be driven by herd behaviour.Our conclusion is that establishing a positive average dependence between gold and equity returns cannot be completely misguided.