Aim and Introduction
This study investigates the impact of gold and silver price fluctuations on stock market indices in selected Middle Eastern countries (Iran, Saudi Arabia, UAE, and Egypt) from 2005 to 2022, grounded in Markowitz’s Portfolio Theory. By employing a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model combined with wavelet transformation, the research examines the dynamic relationships between these variables across different time scales. The motivation stems from the critical role of gold and silver as key commodities in global and regional financial systems, particularly in resource-dependent economies like Iran and the UAE, where understanding these dynamics is essential for effective risk management.
Methodology
A two-step approach integrates wavelet transformation and the TVP-VAR model. Gold and silver price series were decomposed into long-term, medium-term, and short-term frequency components to analyze their interactions with stock market indices. The TVP-VAR model was then applied to capture evolving relationships across these wavelet scales, enabling the identification of temporal and frequency-specific effects and providing nuanced insights into financial market dynamics.
Findings
The results reveal that gold and silver price fluctuations significantly influence stock market indices in the medium- and short-term wavelet scales, but no significant effects were observed in the long-term scale, indicating transient rather than stable dependencies. Significant correlations between gold, silver, and stock indices vary by country and time horizon, with stronger short-term correlations in resource-dependent economies like Iran and the UAE, and negative medium-term correlations in Egypt, reflecting diverse economic structures and policy environments.
Discussion and Conclusion
The findings highlight the value of multi-scale, time-sensitive models like wavelet-based TVP-VAR for analyzing financial market dynamics. The pronounced short-term interdependencies in resource-dependent Middle Eastern countries underscore the need for proactive risk management strategies. This study contributes to the literature by integrating frequency-based analysis into econometric modeling, offering insights that can enhance policy and investment decisions for greater financial stability in the region.