The effect of dynamic contagion of volatility cycles between the future gold market, physical gold market, and exchange rate

Sayari, Bagher; Fallahshams, Mir Feiz; Gholami-Jamkarani, Reza; Jahangirnia, Hossein

doi:10.22075/ijnaa.2024.32058.4768

The effect of dynamic contagion of volatility cycles between the future gold market, physical gold market, and exchange rate

Document Type : Research Paper

Authors

Bagher Sayari ¹

Mir Feiz Fallahshams ²

Reza Gholami-Jamkarani ³

Hossein Jahangirnia ³

¹ Department of Financial Management, Qom Branch, Islamic Azad University, Qom, Iran

² Department of Business Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran

³ Department of Accounting, Qom Branch, Islamic Azad University, Qom, Iran

10.22075/ijnaa.2024.32058.4768

Abstract

In the era of globalization, financial markets of both developed and developing countries have become increasingly interconnected, giving rise to the phenomenon known as financial contagion. This contagion can propagate market turbulence across borders, influencing economic prosperity, downturns, and risk-return dynamics. This study aims to investigate the dynamic contagion of volatility cycles between the future gold market, physical gold market, foreign exchange rates (USD), and the Tehran Stock Exchange from August 29, 2009, to September 5, 2018. To explore this, we employ GARCH-BEKK, Markov Switching, and Vector Autoregressive models to test our research hypotheses. Our findings reveal that volatility contagion extends from the physical gold market to the future coin market and from the foreign exchange market to both the future coin market and the physical gold market. Additionally, we observe varying contagion effects of volatility from the physical gold market to the future coin market under different regimes. Furthermore, the contagion effect of volatility from the foreign exchange market to the physical gold market and the future coin market also varies across different regimes. Intriguingly, our results suggest the absence of a volatility contagion effect from the physical gold market and the future coin market to the foreign exchange market.

Keywords

dynamic contagion

volatility cycles

future gold market

physical gold market exchange rate

Tehran Stock Exchange

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