Relationship Between Gold, Oil and Us Stock Market
INTRODUCTION
In this empirical project I will try to explain the relationship between the oil prices, gold prices and stock market in the United State using yearly time series data. Since the gold and oil prices are raising their influence on stock market is also increasing and we will see how fluctuations in oil prices and gold prices impact the stock market in the United States. So here oil prices and gold prices will be our explanatory variable and stock market index will be our explained variable. In this study we will use multiple regression analysis to explain the relationship.
The data is collected from years 1961 to 2010 so the sample size is 50. The explanatory variable gold is in average us dollars per ounce and crude oil is in average us dollars per barrel both are on yearly basis and are nominal. The data is collected from the website inflationdata.com. (Source:-http://www.fintrend.com/charts/gold-vs-oil-chart/). The explained variable stock market is represented by the SNP 500 since it is one of the most commonly used benchmark for overall US stock market. I have taken yearly returns are taken from year 1961 to 2010. (Source:- http://www.financeandinvestments.blogspot.com/2011/05/historical-annual-returns-for-s-500.html).
The model used for multiple regression analysis is of the form Y = 0+ 1X1+ 2X2+ u
Here Y = stock market annual returns in percentage,X1 = crude oil prices in us dollars per barrel, X2= gold prices in us dollars per ounce
The Standard and Poor’s 500 is an index containing 500 large companies of the US and is one of the most commonly used benchmarks for the overall U.S. stock market. It is better than Dow Jones Industrial Average because DJIA only contains 30 companies so SNP 500 can better represent the overall US stock market. I chose gold because gold is considered as the universal commodity and an investment tool.
In this empirical project I will try to explain the relationship between the oil prices, gold prices and stock market in the United State using yearly time series data. Since the gold and oil prices are raising their influence on stock market is also increasing and we will see how fluctuations in oil prices and gold prices impact the stock market in the United States. So here oil prices and gold prices will be our explanatory variable and stock market index will be our explained variable. In this study we will use multiple regression analysis to explain the relationship.
The data is collected from years 1961 to 2010 so the sample size is 50. The explanatory variable gold is in average us dollars per ounce and crude oil is in average us dollars per barrel both are on yearly basis and are nominal. The data is collected from the website inflationdata.com. (Source:-http://www.fintrend.com/charts/gold-vs-oil-chart/). The explained variable stock market is represented by the SNP 500 since it is one of the most commonly used benchmark for overall US stock market. I have taken yearly returns are taken from year 1961 to 2010. (Source:- http://www.financeandinvestments.blogspot.com/2011/05/historical-annual-returns-for-s-500.html).
The model used for multiple regression analysis is of the form Y = 0+ 1X1+ 2X2+ u
Here Y = stock market annual returns in percentage,X1 = crude oil prices in us dollars per barrel, X2= gold prices in us dollars per ounce
The Standard and Poor’s 500 is an index containing 500 large companies of the US and is one of the most commonly used benchmarks for the overall U.S. stock market. It is better than Dow Jones Industrial Average because DJIA only contains 30 companies so SNP 500 can better represent the overall US stock market. I chose gold because gold is considered as the universal commodity and an investment tool.
References: Hamilton, J.D, 1983,”Oil and the Macro economy since World War II”, Journal of Political Economy, Vol. 91, pp 228-248 Abken, P.A, 1980, “The Economics of Gold Price Movements”, Wall Street Journal, Vol Jones, C.M and Kaul, G, 1996, “Oil and Stock Markets”, The Journal of Finance, Vol. 2, pp 463-491 Faff, R.W, and Brailsford, J