Gold, oil, and stocks: Dynamic correlations

0449082 - ÚTIA 2017 RIV NL eng J - Journal Article
Baruník, Jozef - Kočenda, Evžen - Vácha, Lukáš
Gold, oil, and stocks: Dynamic correlations.
International Review of Economics & Finance. Roč. 42, č. 1 (2016), s. 186-201. ISSN 1059-0560. E-ISSN 1873-8036
R&D Projects: GA ČR GA14-24129S
Institutional support: RVO:67985556
Keywords : Financial markets * Time-frequency dynamics * High-frequency data * Dynamic correlation * Financial crisis * Wavelets
Subject RIV: AH - Economics
Impact factor: 1.261, year: 2016
http://library.utia.cas.cz/separaty/2015/E/barunik-0449082.pdf

We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (gold, oil, and stocks) covering the period from 1987 to 2012. The analysis is performed on both intra-day and daily data. We show that heterogeneity in correlations across a number of investment horizons between pairs of assets is a dominant feature during times of economic downturn and financial turbulence for all three pairs of the assets under research. Heterogeneity prevails in correlations between gold and stocks. After the 2008 crisis, correlations among all three assets increase and become homogenous: the timing dif- fers for the three pairs but coincides with the structural breaks that are identified in specific correlation dynamics. A strong implication emerges: during the period under research, and from a different-investment-horizons perspective, all three assets could be used in a well- diversified portfolio only during relatively short periods.
Permanent Link: http://hdl.handle.net/11104/0250753