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Research Paper | Commerce and Economic Studies | India | Volume 12 Issue 8, August 2023
Dynamics of Intraday Price Discovery and Volatility Transmission: A Comprehensive Analysis of Gold Market Interactions
Dr. Vikas Kumar Jaiswal
Abstract: This study investigates the intraday price discovery process and the transmission of volatility in the gold market, focusing on the interactions between spot prices, futures contracts, and gold - backed exchange - traded funds (ETFs). Gold, as a significant global commodity, attracts substantial trading activities across multiple financial instruments. Understanding how these components interact in determining gold price movements and their impact on market stability is crucial for market participants and policymakers. Using high - frequency data from major global exchanges, we apply vector autoregressive (VAR) and dynamic conditional correlation (DCC) models to analyse the relative contributions of spot, futures, and ETF prices in the price discovery process. We measure the speed at which new information is incorporated into gold prices and assess the efficiency of each market segment in reflecting new information. Furthermore, we investigate the connectedness of volatility between spot, futures, and ETF markets using the Diebold and Yilmaz (2014) spillover index. The analysis aims to identify the degree of interdependence between these segments and explore whether volatility shocks in one market are transmitted to others, potentially influencing overall market stability. Our findings reveal intriguing dynamics in the gold market. We observe distinct patterns of price discovery across spot, futures, and ETF markets, indicating varying speeds of information incorporation and differing contributions to the price formation process. Additionally, we identify substantial volatility connectedness between the different segments, suggesting potential contagion effects during periods of market stress. Overall, this study provides comprehensive insights into the roles of spot prices, futures contracts, and gold - backed ETFs in the intraday gold price discovery process and the transmission of volatility. These findings have important implications for traders, investors, and policymakers seeking to better understand the dynamics and risks associated with trading gold in different financial instruments. Moreover, our research contributes to the broader understanding of price discovery and volatility transmission mechanisms in commodity markets.
Keywords: Intraday dynamics, Gold market, Price discovery, Spot market, Futures contracts, Gold - backed ETFs, Volatility connectedness, Contagion effects, Market stress, Safe - haven asset, Portfolio diversification, Financial stability, Market participants, Exogenous events, Trading strategies, Risk transmission, Market efficiency, Financial instruments, Forward - looking expectations, Dynamic conditional correlation, Market sentiment
Edition: Volume 12 Issue 8, August 2023,
Pages: 1197 - 1204