Financial Econometric

Title of the coursework

The relationship between gold price and share price index as a hedge against international oil price movement in portfolio management: A case study of India.

Motivation of the coursework (i.e. why it is pertinent)

This research had been motivated by the most likely investment opportunities that may be exploited in India. In theory, there seems to be some opportunities for an investor following the removal of subsidies in the oil sector in 2010. Through this research, we aim to use the financial econometric techniques to find out the relationship between oil prices and gold prices during the post liberalization period in order to assess whether our findings can be used to advice an investor seeking to diversify his or her portfolio in gold and shares.

The data and its availability

In the research we shall use the data range from February 2010 to April 2012. The data on gold prices was taken from the World Gold Council and the prices are in Indian rupees per troy ounce. The wholesale price Index had been taken from the Office of the Economic Adviser (India), international oil prices were taken from the World Bank. Subsequently, the Bombay Stock Exchange Index 100 was taken from the Reserve Bank of India and is the closing average figure of daily index price. The research data range might be relatively short but it had been noted the dangers of including the data before 2010 may be higher as model may produce spurious results given the distortions that were in the Indian market.

The modeling approach

We are going to use the techniques of correlation to find if the proposed asset combination that will benefit an investor. Then we are going to check for stationarity of data at levels. The line graphs are to be used to map out the way the data behave to find the data transformation