We analyze the dynamics of the prices of gold, oil, and stocks over 26 years (1987-2012) using both intra-day and daily data and employing a variety of methodologies including a novel time-frequency approach. We account for structural breaks and show radical change in correlations between assets after the 2007-2008 crisis in terms of time-frequency behavior. No strong evidence for a specific asset leading any other one emerges and the assets under research do not share the long-term equilibrium relationship. Strong implication is that after the structural change gold, oil, and stocks cannot be used together for risk diversification .
We employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets ( gold, oil, and stocks ) covering the period from 1987 to 2012. The analysis is performed on both intra-day and daily data . We show that heterogeneity in correlations across a number of investment horizons between pairs of assets is a dominant feature during times of economic downturn and financial turbulence for all three pairs of the assets under research . Heterogeneity prevails in correlations between gold and stocks. After the 2008 crisis, correlations among all three assets increase and become homogenous: the timing differs for the three pairs but coincides with the structural breaks that are identified in specific correlation dynamics. A strong implication emerges: during the period under research, and from a different-investment-horizons perspective, all three assets could be used in a well-diversified portfolio only during relatively short periods .
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analyze the dynamics of the prices of
employ a wavelet approach and conduct a time-frequency analysis of dynamic correlations between pairs of key traded assets (
R
over 26 years (1987-2012) using
) covering the period from 1987 to 2012. The analysis is performed on
R
and employing a variety of methodologies including a novel time-frequency approach. We account for structural breaks and show radical change in correlations between assets after the 2007-2008 crisis in terms of time-frequency behavior. No strong evidence for a specific asset leading any other one emerges and
. We show that heterogeneity in correlations across a number of investment horizons between pairs of assets is a dominant feature during times of economic downturn and financial turbulence for all three pairs of
R
do not share the long-term equilibrium relationship. Strong implication is that after the structural change gold, oil, and stocks cannot be used together for risk diversification
. Heterogeneity prevails in correlations between gold and stocks. After the 2008 crisis, correlations among all three assets increase and become homogenous: the timing differs for the three pairs but coincides with the structural breaks that are identified in specific correlation dynamics. A strong implication emerges: during the period under research, and from a different-investment-horizons perspective, all three assets could be used in a well-diversified portfolio only during relatively short periods