Cointegration and Causal Relationship among Crude Price, Domestic Gold Price and Financial Variables: An Evidence of BSE and NSE

The present study investigates the cointegration relationships among crude oil price, domestic gold price and selected financial variables (exchange rates and stock price indices) in India. Increasing crude oil prices will increase the production costs which will affect cash flow and will decrease stock prices. Investors are showing fewer concerns in the stock markets and investing in yellow metals due to increasing trend in gold prices on account of no fear and no future loss. Again, exchange rate fluctuations will affect international trades, thus influence the stock market. This study is based on secondary data obtained from various data sources including BSE database, NSE database and World Gold Council database for the period from January 2, 1991 to October 31, 2012. In the course of analysis, ADF unit root test, Johansen cointegration analysis and Granger causality test have been designed. Johansen cointegration test result indicates that there exists a long-term relationship among the selected variables. Granger causality test result shows that there must be either bidirectional or no causality among the variables.