Impact of domestic gold prices on stock returns in Indian stock market

Abstract

Investments in gold and share markets have been a vital avenue for various investors over decades. Investors these days prefer to transfer the savings to such investmentswhich give them better returns. This also shows the risk taking ability of the investors. The present study attempts to find out the relationship between the two investment avenues i.e. gold and share market, and their daily returns. For the purpose of study, daily returns have been calculated for 50 companies consisting NIFTY 50 and Gold. The period of study is 5 years from April 2010 to March 2015. The returns have been converted into log form for normality purpose. Statistical software's such as E-Views and Gretl have been used to analyze the data. The study made use of statistical techniques such as, correlation analysis, regression analysis and Granger causality test to find the results. The study found inverse relationship between gold returns and stock returns. The results do not provide sufficient evidence that the gold returns have an impact on the overall individual company stock returns. But when gold returns were regressed over Nifty 50 returns, the result clearly indicated the gold returns do significantly affect the Nifty 50 stock returns. However, no causation effect was found for the same.