Time series analysis of co-movements in the prices of gold and oil: Fractional cointegration approach

This paper deals with the relationship between oil prices and gold prices using some recently developed techniques in time series analysis, and based on the concepts of fractional integration and cointegration. We show first, that using standard methods of unit roots and cointegration with integer d...

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Bibliographic Details
Published in:Resources policy 2017-09, Vol.53, p.117-124
Main Authors: Gil-Alana, Luis A., Yaya, OlaOluwa S., Awe, Olushina O.
Format: Article
Language:English
Subjects:
Cobalt
Cointegration analysis
Crude oil prices
Differentiation
Fractional cointegration
Fractional integration
Gold
Gold markets
Oil price
Petroleum
Prices
Studies
Time series
Unit roots
West Texas Intermediate market
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Summary:This paper deals with the relationship between oil prices and gold prices using some recently developed techniques in time series analysis, and based on the concepts of fractional integration and cointegration. We show first, that using standard methods of unit roots and cointegration with integer degrees of differentiation, the two series seem to be individually I(1) though cointegrated. However, using fractional techniques, we show that there exists a fractionally cointegrated relationship between the two variables, with an order of integration in the long run relationship of about 0.46. Moreover, shocks in the price of gold seem to have an effect on the price of oil that persists in time. •The paper deals with the relationship between oil prices and gold prices.•We usefractional integration and cointegration.•Using standard unit roots and cointegrationmethods the two series are individually I(1) though cointegrated.•Using fractional techniques, we show that there exists a fractionally cointegrated relationship between the two variables, with an order of integration in the long run relationship of about 0.46.
ISSN:0301-4207
1873-7641
DOI:10.1016/j.resourpol.2017.06.006