Volatility Interaction Mechanism Among the Gold, Foreign Exchange and Equity Markets

Abstract

This study investigates the volatility transmission mechanism among the gold, foreign exchange and equity markets by using multivariate GARCH modeling. Gold price per gram, US dollar and ISE 100 index are studied in a model framework where the asymmetric behavior of volatility is accounted for as well. Moreover, the interaction of Turkish equity market with global gold and dollar markets is analyzed within another system. Based on our estimation results, all the variables have heteroscedastic volatility and ISE 100 index shows asymmetric volatility pattern which is common for equity markets. Other noticeable findings are the shock and volatility transmission from US dollar market to domestic gold market and the volatility pattern of ISE 100 index which seems to be isolated from the global gold and dollar markets. The results provide useful implications for portfolio diversification and option strategies.