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Investigating the Ability of Gold as Hedging Tool Against Inflation in
Malaysia by Using Markov Switching-Vector Error Correction Model
Siti Hajar Binti Nankir @ Abdul Rahim
Supervisor: Dr. Che Mohd Imran Bin Che Taib
Bachelor of Science (Financial Mathematics)
School of Informatics and Applied Mathematics
This study analyzes the ability of gold as hedging tool against inflation particularly in
Malaysia. The monthly data of Consumer Price Index (CPI), Producer Price Index (PPI)
and gold prices are observed starting from January 2010 until January 2016. Johansen
Cointegration Test is used to check the existence of cointegrating relation between the
price of gold with the Consumer Price Index (CPI) and Producer Price Index (PPI). An
approach of Markov Switching-Vector Error Correction Model (MS-VECM) is also used in
the transition probabilities at two regimes switching dependent states. Results found that
gold has the ability to be a useful tool to hedge against inflation since there is 99% of
the total sample size are recorded in the growth state.
886 | UMT UNDERGRADUATE RESEARCH DAY 2018