Evaluating the nonlinear linkage between gold prices and stock market index using Markov-Switching Bayesian VAR models

Akgul I., Bildirici M. E., Ozdemir S.

4th International Conference on Leadership, Technology, Innovation and Business Management (ICLTIBM), İstanbul, Turkey, 19 - 21 November 2014, vol.210, pp.408-415 identifier

  • Publication Type: Conference Paper / Full Text
  • Volume: 210
  • Doi Number: 10.1016/j.sbspro.2015.11.388
  • City: İstanbul
  • Country: Turkey
  • Page Numbers: pp.408-415
  • Keywords: Crude oil prices, Gold prices, S&P 500, Bayesian VAR model, Sims & Zha prior distribution, INTEREST-RATES, OIL PRICES, SHOCKS, COUNTRIES
  • Yıldız Technical University Affiliated: Yes


This study makes a contribution to the literature by applying the Markov-Switching Bayesian VAR models for the first time to investigate the nonlinear linkage between gold prices and stock market index. Analyses have been done in the period from 1986: 04 to 2013:11. The Bayesian approach to econometrics provides a general method for combining modeller's beliefs with the evidence contained in the data. In contrast to the classical approach to estimate a set of parameters, Bayesian statistic presupposes a set of prior probabilities about the underlying parameters to be estimated. We use gold prices (USD/oz.) and S&P 500 Stock Price Index as an endogenous, the crude oil prices (Brent-$/barrel) as an exogenous variable in the analysis. We investigate the number of regime by LR test and The Markov Chain Monte Carlo (MCMC) algorithm and Sims & Zha (1998) prior distribution are employed to estimate the models.