Dependency between Exchange Rate and Gold Price via Copula-DCC-GARCH Approach

The dependency structure among financial assets is the main source of uncertainties in the economy. In this study, the dependency structure between dollar and gold returns is modelled via the Copula-DCC-GARCH approach. This method provides rather effective results in modelling the characteristics of financial assets such as asymmetry and heavy tail. It also allows the determination of many dependence structures such as tail dependency and non-linear dependencies. In the first stage of the study, standardized residues are obtained by applying the DCC-GARCH method to returns of dollar and gold. Then, the dependency structure between gold and dollar returns is modelled by means of dynamic copulas. As a result of the study, it was found that Student's t Copula models the best dependency between dollar and gold returns, and the dependency is not constant but change over time as well as in the process of the extreme events in the financial markets, the dollar and gold prices tend to co-movement.