Multivariate granger causality among oil prices, gold prices, and KSE100: evidence from Johansen Cointegration and GARCH models

The purpose of the research study is to examine the effect of changes in crude oil prices (COP) and gold prices (GP) and the long-run relationship of equity returns of KSE100 index. We have considered the sample period from January 1, 2010, through June 30, 2016, the KSE100 index daily data was obtained from the website of Pakistan stock exchange, and for COP and GP, we used the Yahoo Finance website. We employed descriptive statistics, correlation analysis, unit root test (ADF), multivariate cointegration, Granger causality, and ARCH & GARCH (1,1) time series models to perform the analysis. Results of the study revealed an average daily return of stock prices is 9.85% with the volatility of 0.4676. Correlation analysis showed a significant negative association amidst equity returns, and crude oil and gold prices. By employing Johansen cointegration, we concluded that there is no long-run association has been observed amidst the equity returns, and crude oil and gold prices. The Granger causality test suggested one-way causation from COP to KSE100 at 5% level. The ARCH and GARCH (1,1) results revealed a cogent impact of COP on the returns volatility of KSE100 indexLietuvos sporto universitetasVadybos katedraVytauto Didžiojo universiteta