Effects of Geopolitical Risks on Gold Market Return Dynamics: Evidence from a Nonparametric Causality-in-quantiles Approach

ABSTRACT

This study uses a nonparametric causality-in-quantiles approach to investigate the causal relationship between the gold market and geopolitical risks from 4 January 2000, to 17 November 2017, using high-frequency data. The results indicated that geopolitical risks affect volatility rather than returns in the gold market. We also decompose intraday volatility into continuous and discontinuous jump components and find that geopolitical risks have stronger causality with the jump component under bear and normal market conditions. The results show, moreover, that the effects of geopolitical risks on realized volatility are asymmetric. Lastly, we divide the entire sample into four major geopolitical events (i.e. the 9/11 terrorist attacks, Irap invasion, the Russia-Ukraine crisis, and Paris attacks) and find that the effect of these events on the gold market varied by type and scope.

KEYWORDS:

• Geopolitical risk
• gold returns
• gold volatility
• nonparametric causality-in-quantiles
• high-frequency data

JEL CLASSIFICATION:

• C22
• G10
• G15

Funding

This work was supported by the National Natural Science Foundation of China [71633006]; Innovation-Driven Project of Central South University [2020CX049]; Natural Science Foundation of Hunan Province [2020JJ5784].

Acknowledgments

The authors gratefully acknowledge the financial support provided by the National Natural Science Foundation of China (71633006), the Natural Science Foundation of Hunan Province (2020JJ5784), the Innovation-Driven Project of Central South University (2020CX049), the National Natural Science Foundation of China (71874210, 71874207, and 71974208), the Hunan Postgraduate Education Innovation Project and Professional Ability Enhancement Project (CX20200295), the Central South University Postgraduate Independent Exploration and Innovation Project (2020zzts016). The comments by anonymous referees on previous versions that helped improve the paper are also gratefully acknowledged. The usual disclaimer applies.

Disclosure Statement

No potential conflict of interest was reported by the author(s).