The Dynamic Interrelation Between Gold And Finace Markets Based On Wavelet Theroy

Since the outbreak of the subprime crisis in August 2007, the price of gold has fluctuated sharply, which has brought gold investors great risk and challenge. Under the background of the financial crisis, gold price was not only affected by the gold price decided mechanism itself, but also by the foreign exchange market, commodity market, financial derivatives market, and thus co-movement phenomenon appearsbetween markets. Even under the same macro economic background, one international financial event or crisis may impact the gold market and other markets differently, whether the impact degree or the reaction speed. The scientific problem that this paper tring to explore is the co-movement between gold futures market and foreign exchange market, gold futures market and commodity market, gold futures market and gold financial derivatives market.This paper firstly comprehensively teases the information of gold, including the physical and chemical properties,resource reserves situation, supply and consumption, trading market and analyzes its unique three social attributes-commodity attribute, monetary attribute, investment attribute. After reviewing market co-movement theory and summing up the achievements and empirical experience of the forerunners, this paper combined wavelet transform, which has good localization characteristic both in time domain and frequency domain, with classical econometrics, and constructed the multi-scale time series co-movement model. Using high-frequency data of New York Comex gold futures, USD index, RJ/CRB commodity index, SPDR ETF from August 2, 2007 to December 24, we carry out a multi-scale and multi-resolution analysisof the co-movement relationship between gold and foreign exchange markets, the relationship between gold and commodity markets, the relationship between gold and goldderivatives market. The empirical research of co-movement relationship, including trend relationship, contemporaneous correlation relationship, lead or lag correlation relationship, fully displayed the trend characteristics, volatility characteristics, contemporaneous correlation relationship and degree, lead or lag correlation relationship and degree between gold and related financialmarket, and analyzed the economic and financial factors behind these trends and characteristics. Finally, based on the conclusions of the empirical research, we put forward specific measures ofimprovement and development of China’sgold market.The conclusion of this paper has positive theoretic worth and practical significance for us to grasp the trend of gold and to analyse gold pricing mechanism fundamentally. It will help investors to manage invest portfolio, improve earning, reduce risk, and provide valuable investment reference for related investors in gold market. It also provides policy advice to the central bank and policy makers of the domestic gold market.