The Volatility Transmission of Gold around the World

Abstract

This paper studies how one gold market affects another gold market in a different time zone, using the daily data from the Hong Kong, London, and New York markets over the period 2000-2005. When using the variable of intraday returns in regressions, we find that the Hong Kong market does not affect the London market, which has no impact on the New York market, which, in turn, does not affect the Hong Kong market. This finding is consistent with the theory of market efficiency because the intraday performance of one gold market cannot predict the intraday performance of another gold market that trades subsequently. However, when using the variable of intraday return volatility in regressions, we find that the Hong Kong market positively affects the London market, that the London market positively affects the New York market, and that the New York market positively affects the Hong Kong market. This new evidence contributes to the existing literature in financial market integration by suggesting that there are high degrees of volatility linkages between the Hong Kong, London, and New York gold markets.