Effects of Price of Gold on Bombay Stock Exchange Sectoral Indices: New Evidence for Portfolio Risk Management

Res Int Bus Finance. 2021 Jan;55:101316. doi: 10.1016/j.ribaf.2020.101316. Epub 2020 Aug 21.


Using daily data, this paper examines the relationship between the returns of gold and seven sectoral indices in the Bombay Stock Exchange (BSE) for the period from January 2000 to May 2018. Given the importance of gold in India, there are significant issues in a portfolio selection in that country. By addressing the hedged robust portfolio problems, this paper focuses on three vanilla portfolio problems: the maximum return portfolio allocation, the global minimum variance portfolio problem, and the Markowitz portfolio allocation by using various multiple generalized autoregressive conditional heteroskedasticity (GARCH) models. The paper finds that gold returns are significantly independent of the returns of the BSE sectoral indices. Besides, gold returns can help predict the future returns of the Consumer Durables and the Fast-Moving Consumer Goods indices as well as the Oil & Gas equity indices. Finally, the findings also show that gold hedges against the information technology stock index and serves as a robust portfolio diversification tool. With these new results, this paper offers several implications for investors and risk management purposes.

Keywords: Price of gold; multiple GARCH models; nonlinear causality test; quantile coherence analysis; robust portfolio problems.