Search Advanced

AIMS Mathematics

2020, Volume 5, Issue 5: 5094-5105. doi: 10.3934/math.2020327
Previous Article Next Article
Research article

Forecasting stock market volatility: the role of gold and exchange rate

  • College of Mathematics and Statistics, Changsha University of Science and Technology, Hunan, 410114, China
  • Received: 20 April 2020 Accepted: 10 June 2020 Published: 12 June 2020

  • MSC : 91B25, 91B80

  • The objective of our paper is to show that gold and exchange rate volatility is predictive of stock volatility from both in-sample and out-of-sample perspectives. There exists very significant predictability from gold and exchange rate volatility to Hang Seng Index (HSI) return volatility among in-sample results. The out-of-sample results demonstrate the gold and exchange rate volatility extracts significantly useful information for Hang Seng Index (HSI) return volatility. Furthermore, the performance of the predictive ability of gold and exchange rate volatility is robust during business cycles and incremental framework.

    Citation: Zhifeng Dai, Huiting Zhou, Xiaodi Dong. Forecasting stock market volatility: the role of gold and exchange rate[J]. AIMS Mathematics, 2020, 5(5): 5094-5105. doi: 10.3934/math.2020327

    Related Papers:

  • The objective of our paper is to show that gold and exchange rate volatility is predictive of stock volatility from both in-sample and out-of-sample perspectives. There exists very significant predictability from gold and exchange rate volatility to Hang Seng Index (HSI) return volatility among in-sample results. The out-of-sample results demonstrate the gold and exchange rate volatility extracts significantly useful information for Hang Seng Index (HSI) return volatility. Furthermore, the performance of the predictive ability of gold and exchange rate volatility is robust during business cycles and incremental framework.


    加载中


    [1] G. Schwert, Why does stock market volatility change over time? J. Finance, 44 (1989), 1115-1153.
    [2] F. X. Diebold, K. Yilmaz, Macroeconomic Volatility and Stock Market Volatility, Worldwide. (No. w14269). National Bureau of Economic Research, 2008.
    [3] C. Christiansen, M. Schmeling, A. Schrimpf, A comprehensive look at financial volatility prediction by economic variables, J. Appl. Econom., 27 (2012), 956-977. doi: 10.1002/jae.2298
    [4] B. S. Paye, Déjavol: predictive regressions for aggregate stock market volatility using macroeconomic variables, J. Financ. Econ., 106 (2012), 527-546. doi: 10.1016/j.jfineco.2012.06.005
    [5] R. F. Engle, E. Ghysels, B. Sohn, Stock market volatility and macroeconomic fundamentals, Rev. Econ. Stat., 95 (2013), 776-797. doi: 10.1162/REST_a_00300
    [6] C. Conrad, K. Loch, D. Rittler, On the macroeconomic determinants of long-term volatilities and correlations in US stock and crude oil markets, J. Empir. Financ., 29 (2014), 26-40. doi: 10.1016/j.jempfin.2014.03.009
    [7] N. Nonejad, Forecasting aggregate stock market volatility using financial and macroeconomic predictors: Which models forecast best, when and why? J. Empir. Financ., 42 (2017), 131-154.
    [8] Y. Wang, F. Ma, Y. Wei, et al. Forecasting realized volatility in a changing world: A dynamic model averaging approach, J. Bank. Financ., 64 (2016), 136-149. doi: 10.1016/j.jbankfin.2015.12.010
    [9] Y. Wang, Z. Pan, C. Wu, Time-Varying Parameter Realized Volatility Models, J. Forecasting, 36 (2017), 566-580. doi: 10.1002/for.2454
    [10] Y. Zhang, Y. Wei, F. Ma, et al. Economic constraints and stock return predictability: A new approach, Int. Rev. Financ. Anal., 63 (2019), 1-9.
    [11] J. Feng, Y. Wang, L. Yin, Oil volatility risk and stock market volatility predictability: Evidence from G7 countries, Energ. Econ., 68 (2017), 240-254. doi: 10.1016/j.eneco.2017.09.023
    [12] Y. Wang, Y. Wei, C. Wu, et al. Oil and the short-term predictability of stock return volatility, J. Empir. Financ., 47 (2018), 90-104. doi: 10.1016/j.jempfin.2018.03.002
    [13] Z. Dai, H. Zhou, F. Wen, et al. Efficient predictability of stock return volatility: the role of stock market implied volatility, N. Am. J. Econ. Finance, 52 (2020), 101174.
    [14] D. G. Baur, B. M. Lucey, Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold, Financ. Rev., 45 (2010) 217-229,
    [15] D. G. Baur, T. K. McDermott, Is gold a safe haven? International evidence, J. Bank. Financ., 34 (2010), 1886-1898. doi: 10.1016/j.jbankfin.2009.12.008
    [16] M. Hood, F. Malik, Is gold the best hedge and a safe haven under changing stock market volatility? Rev. Financ. Econ., 22 (2013), 47-52.
    [17] J. D. Hamilton, Oil and the macroeconomy since World War II, J. Pol. Econ., 91 (1983), 228-248. doi: 10.1086/261140
    [18] D. Roubaud. M. Arouri, Oil prices, exchange rates and stock markets under uncertainty and regime-switching, Financ. Res. Lett., 27 (2018), 28-33. doi: 10.1016/j.frl.2018.02.032
    [19] A. Salisu, H. Mobolaji, Modeling returns and volatility transmission between oil price and US-Nigeria exchange rate, Energy Economics, 39 (2013), 169-176. doi: 10.1016/j.eneco.2013.05.003
    [20] R. Aloui, M. S. Ben Aïssa, D. K. Nguyen, Conditional dependence structure between oil prices and exchange rates: a copula-GARCH approach, J. Int. Money Fin., 32 (2013), 719-738. doi: 10.1016/j.jimonfin.2012.06.006
    [21] M. Pal, P. M. Rao, P. Manimaran, Multifractal detrended cross correlation analysis on gold, crude oil and foreign exchangerate time series, Physica A, 416 (2014), 452-460. doi: 10.1016/j.physa.2014.09.004
    [22] A. Jain, P. C. Biswal, Dynamic linkages among oil price, gold price, exchange rate, and stock market in India, Resources Policy, 49 (2016), 179-185.
    [23] J. F. Li, X. S. Lu, Y. Zhou, Cross-correlations between crude oil and exchange markets for selected oil rich economies, Physica A, 453 (2016), 131-143. doi: 10.1016/j.physa.2016.02.039
    [24] A. K. Mishra, N. Swain, D. K. Malhotra, Volatility spillover between stock and foreign exchange markets: Indian evidence, Int. J. Business, 12 (2007), 343-359.
    [25] D. Choi, V. Fang, T. Fu, Volatility spillovers between New Zealand stock market returns and exchange rate changes before and after the 1997 Asian financial crisis, Asian journal of Finance and Accounting, 1 (2009), 106-117.
    [26] C. Walid, A. Chaker, O. Masood, et al. Stock market volatility and exchange rates in emerging countries: a Markov switching approach, Emerg. Mark. Rev., 12 (2011), 272-292. doi: 10.1016/j.ememar.2011.04.003
    [27] K. Grobys, Are volatility spillovers between currency and equity market driven by economic states? Evidence from the US economy, Econ. Lett., 127 (2015), 72-75. doi: 10.1016/j.econlet.2014.12.034
    [28] N. Oberholzer, S. T. von Boetticher, Volatility Spill-over between the JSE/FTSE Indices and the South African Rand, Proc. Econ. Finan., 24 (2015), 501-510. doi: 10.1016/S2212-5671(15)00618-8
    [29] W. Mensi, M. Beljid, A. Boubaker, et al. Correlations and volatility spillovers across commodity and stock markets: linking energies, food and gold, Econ. Model., 32 (2013), 15-22. doi: 10.1016/j.econmod.2013.01.023
    [30] Z. Dai, X. Chen, F. Wen, A modified Perry's conjugate gradient method-based derivative-free method for solving large-scale nonlinear monotone equations, Appl. Math. Comput., 270 (2015), 378-386.
    [31] T. Choudry, S. Hassan, S. Shabi, Relationship between gold and stock markets during the global financial crisis: evidence from nonlinear causality tests, Int. Rev. Financ. Anal., 41 (2015), 247-256. doi: 10.1016/j.irfa.2015.03.011
    [32] A. I. Maghyereh, T. Awartani, Volatility spillovers and cross-hedging between gold, oil and equities: evidence from the Gulf Cooperation Council countries, Energy Economics, 68 (2017), 440-453. doi: 10.1016/j.eneco.2017.10.025
    [33] S. J. Taylor, Modeling Financial Time Series. John Wiley and Sons, Ltd., 1986.
    [34] Z. F, Dai, H. Zhu, Forecasting stock market returns by combining sum-of-the-parts and ensemble empirical mode decomposition, Appl. Econ., 52 (2020), 2309-2323. doi: 10.1080/00036846.2019.1688244
    [35] T. G. Andersen, T. Bollerslev, Heterogeneous information arrivals and return volatility dynamics: Uncovering the long-run in high frequency returns, J. Finance, 52 (1997), 975-1005. doi: 10.1111/j.1540-6261.1997.tb02722.x
    [36] T. G. Andersen, T. Bollerslev, F. X. Diebold, et al. The distribution of realized stock return volatility, J. Financ. Econ., 61 (2001), 43-76. doi: 10.1016/S0304-405X(01)00055-1
    [37] T. G. Andersen, T. Bollerslev, F. X. Diebold, et al. Modeling and forecasting realized volatility, Econometrica, 71 (2003), 529-626.
    [38] J. Y. Campbell, S. B. Thompson, Predicting excess stock returns out of sample: can anything beat the historical average? Rev. Financ. Stud., 21 (2008), 1509-1531.
    [39] C. J. Neely, D. E. Rapach, J. Tu, et al. Forecasting the equity risk premium: the role of technical indicators, Manag. Sci., 60 (2014), 1772-1791. doi: 10.1287/mnsc.2013.1838
    [40] D. E. Rapach, J. K. Strauss, G. Zhou, Out-of-sample equity premium prediction: combination forecasts and links to the real economy, Rev. Financ. Stud., 23 (2010), 821-862. doi: 10.1093/rfs/hhp063
    [41] Z. F. Dai, H. T. Zhou, Prediction of stock returns: sum-of-the-parts method and economic constraint method, Sustainability, 12 (2020), 541.
    [42] Z. F. Dai, H. Zhu, Stock return predictability from a mixed model perspective, Pac-Basin. Finac. J., 60 (2020), 101267.
    [43] F. Wang, W. Zhao, S. Jiang, Detecting asynchrony of two series using multiscale cross-trend sample entropy, Nonlinear Dynam., 99 (2020), 1451-1465. doi: 10.1007/s11071-019-05366-y
    [44] Z. F, Dai. H. Zhu, F. Wen, Two nonparametric approaches to mean absolute deviation portfolio selection model, J. Ind. Manag. Optim., 13 (2019), 1.
    [45] Z. F. Dai, X. Dong, J. Kang, et al. Forecasting stock market returns: new technical indicators and two-step economic constraint method, N. Am. J. Econ. Finance, 53 (2020), 101216.
    [46] Z. F. Dai, F. H. Wen, Some improved sparse and stable portfolio optimization problems, Financ. Res. Lett., 27 (2018), 46-52. doi: 10.1016/j.frl.2018.02.026
    [47] F. Wen, Y. Zhao, M. Zhang, et al. Forecasting realized volatility of crude oil futures with equity market uncertainty, Appl. Econ., 51 (2019), 6411-6427. doi: 10.1080/00036846.2019.1619023
    [48] F. Wen, L. Xu, G. Ouyang, et al. Retail investor attention and stock price crash risk: Evidence from China, Int. Rev. Financ. Anal., 65 (2019), 101376.
    [49] Z. F. Dai, H. Zhu, A modified Hestenes-Stiefel-type derivative-free method for large-scale nonlinear monotone equations, Mathematics, 8 (2020), 168.
    [50] T. E. Clark, K. D. West, Approximately normal tests for equal predictive accuracy in nested models, J. Econometrics, 138 (2007), 291-311.
    [51] A. Inoue, L. Kilian, In-sample or out-of-sample tests of predictability: Which one should we use? Economet. Rev., 23 (2004), 371-402.
    [52] Y. Zhang, F. Ma, T. Wang, et al. Out-of-sample volatility prediction: A new mixed-frequency approach, J. Forecasting, 38 (2019), 669-680 doi: 10.1002/for.2590
    [53] Y. Zhang, F. Ma, Y. Liao, Forecasting global equity market volatilities, Int. J. Forecasting, 2020.
    [54] T. Choudhry, F. I. Papadimitriou, S. Shabi, Stock market volatility and business cycle: evidence from linear and nonlinear causality tests, J. Bank. Financ., 66 (2016), 89-101. doi: 10.1016/j.jbankfin.2016.02.005
    [55] J. Chen, F. Jiang, Y. Liu, et al. International volatility risk and Chinese stock return predictability, J. Int. Money Financ., 70 (2016), 183-203.
  • Reader Comments
  • © 2020 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
通讯作者: 陈斌, bchen63@163.com
  • 1. 

    沈阳化工大学材料科学与工程学院 沈阳 110142

  1. 本站搜索
  2. 百度学术搜索
  3. 万方数据库搜索
  4. CNKI搜索
AIMS Mathematics
1.8 3.4

Metrics

Article views(4284) PDF downloads(312) Cited by(3)

Preview PDF
Download XML
Export Citation
Article outline

Figures and Tables

Tables(5)

Other Articles By Authors

Related pages

Tools

/

DownLoad:  Full-Size Img  PowerPoint
Return
Return

Catalog