International Journal of Business and Economics Volume 22, No. 1 June, 2023

Dynamic Spillovers Between Crude Oil Price and Gold Price: Empirical Evidence

Naliniprava Tripathy

MBA, Indian Institute of Management Shillong, India

Shekhar Mishra

MBA, C.V.Ramam Global University, India

Abstract

This paper intends to explore the volatility transmission amid crude oil price and the gold price in India employing BEKK-GARCH, CCC-GARCH, and DCC-GARCH model. Further, the model’s outcome is used to estimate the optimal weights and hedge ratios for oil -bullion portfolio holdings. The outcome of the study indicating a historic relationship among oil and the gold price in India. The results also specify that the DCC GARCH model is more preferred than CCC GARCH and BEKK GARCH model since the DCC GARCH model provides more evidence of volatility spillover between the oil and gold returns. The analysis postulating that the gold price is sensitive to oil price changes. Hence, gold price changes could be a predictor for oil returns in India. The estimated hedge ratio postulates that gold is a valuable hedge for the fluctuations in the oil price in India. The study results provide a valuable insight to the investors/ institutional investors to understand the spillover effect to make better investment decisions by diversifying their risk.

Keywords：Oil Price, Gold, GARCH, Hedge Ratio, Diversification.

JEL Classifications：G11, G12, G15

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