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The present research paper examines the impact of domestic gold price on stock price indices in India
for the period for the period from 2nd January, 1991 to 10th August, 2012 using appropriate statistics,
unit root test and Granger causality test. The domestic gold price in India is eternally escalating in
consequence of its intense domestic demand on account of protection, liquidity along with spreader
portfolio. It give the impression of being at the remarkable data brings to the plane that when the stock
market crumples or when the dollar worsens, gold prolongs to be a safe haven investment because
gold prices increase in such situations. The study is based on secondary data obtained from World
Gold Council database and BSE and NSE database. Unit root test indicates that time series are not
stationary at levels and the selected time series are stationary at 1st difference. Granger causality test
illustrate that no causality exists between nifty and gold price, gold price and sensex and nifty and
sensex and bidirectional causality exists between gold price and nifty, sensex and gold price and
sensex and nifty.
Keywords: Gold Price, Sensex, Nifty, India, Correlation, Multiple regression, ADF and PP unit root test,
Granger causality test
INTRODUCTION
The study of the capital market of a country in terms of a
wide range of macro-economic and financial variables
has been the area under discussion of many researches
during the last two decades. Empirical studies make
known that when financial deregulation comes to pass,
the stock markets of a country become more sensitive to
both domestic and peripheral factors and one of these
factors is the price of gold. Historical practices give an
idea about that in countries in period of stock market
slump, the gold for perpetuity trends higher (Neda
Bashiri, 2011). The domestic gold price in India is
continually ever-increasing on account of its heavy
domestic demand as a consequence of security, liquidity
and diversified portfolio. A look at the historic data brings
to the surface that when the stock market collapses or
when the dollar deteriorates, gold continues to be a safe
haven investment because gold prices rise in such
circumstances (Gaur and Bansal, 2010). This paper
036
037
038
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
Jarque-Bera
Probability
Observations
NIFTY
7.441530
7.171926
8.750279
5.724304
0.728326
0.333418
1.988496
317.9648
0.000000
5199
SENSEX
8.648325
8.365752
9.952514
6.862873
0.735241
0.330504
1.984920
317.8578
0.000000
5199
1 ,6 00
Series: GOLD_PRICE
Sample 1 5639
Observations 5639
1 ,4 00
1 ,2 00
1 ,0 00
8 00
6 00
4 00
2 00
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
8.806313
8.492613
10.37824
7.768380
0.646459
0.929154
2.733134
Jarque-Bera
Probability
828.1164
0.000000
0
8.0
8 .5
9 .0
9.5
1 0.0
800
Series: NIFTY
Sample 1 5639
Observations 5199
700
600
500
400
300
200
100
Mean
Median
Maximum
Minimum
Std. Dev.
Skewness
Kurtosis
7.441530
7.171926
8.750279
5.724304
0.728326
0.333418
1.988496
Jarque-Bera
Probability
317.9648
0.000000
0
5.8 6.0 6.2 6.4 6.6 6.8 7.0 7.2 7.4 7.6 7.8 8.0 8.2 8.4 8.6 8.8
039
040
GOLD_PRICE
NIFTY
SENSEX
NIFTY
SENSEX
1.000000
0.992889
1.000000
Variable
Coefficient
Std. Error
t-Statistic
Prob.
VIF
NIFTY
SENSEX
C
0.506820
0.159020
3.540772
0.030034
0.029751
0.044353
16.87511
5.344999
79.83175
0.0000
0.0000
0.0000
17.851
17.851
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)
0.869920
0.869870
0.187743
183.1451
1320.717
17374.35
0.000000
0.869920
0.869870
0.187743
183.1451
1320.717
17374.35
0.876287
at level
0.784469
-1.6699151
-1.8443263
at 1st difference
-77.16061
-50.62846
-65.98076
-3.431425
-2.861900
-2.567004
-3.431330
-2.861858
-2.566982
at level
0.830414
-1.702241
-1.810382
at 1st difference
-77.14896
-65.42885
-65.95544
041
Null Hypothesis
Obs
F-Statistic
Prob.
Decision
NIFTY GOLD_PRICE
5197
0.67598
0.5087
DNR H0
3.87787
0.0208
Reject H0
Bi-directional
causality
4.14253
0.0159
Reject H0
Bi-directional
causality
2.30010
0.1004
DNR H0
123.853
3.E-53
Reject H0
Bi-directional
causality
1.61115
0.1998
DNR H0
No causality
GOLD_PRICE NIFTY
SENSEX GOLD_PRICE
5197
GOLD_PRICE SENSEX
SENSEX NIFTY
5197
NIFTY SENSEX
No causality
Note: Decision rule: reject H0 if P-value < 0.05, DNR = Do not reject; = does not Granger cause.
(2012).
Pairwise Granger causality Tests Results
The Granger causality test (Awe, O. O, 2012 and Hakan
Gne, 2005) is a statistical proposition test for
determining whether one time series is helpful in
forecasting another. The pairwise Granger causality test
042
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