Dynamic linkages among oil price, gold price, exchange rate, and stock market in India

Governments impose taxes and levies to manage the effect of gold and crude oil imports on the exchange rate. These in return have relations with the economy of the country, best reflected in the stock market index. This study aims to explore the relation between global prices of gold, crude oil, the USD-INR exchange rate, and the stock market in India. The dynamic contemporaneous linkages have been analyzed using DCC-GARCH (standard, exponential and threshold) models and the lead lag linkages have been examined using symmetric and asymmetric Non Linear Causality tests. Empirical analyses indicate fall in gold prices and crude oil prices cause fall in the value of the Indian Rupee and the benchmark stock index i.e. Sensex. The findings of this study also support the emergence of gold as an investment asset class among the investors. More importantly, this study highlights the need for dynamic policy making in India to contain exchange rate fluctuations and stock market volatility using gold price and oil price as instruments.