Volatility on us dollar and stock market and gold as hedging instrument against inflation

Return and risk are two significant factors used for the selection of the financial instruments. This study will be useful in terms of demonstrating the past long-term risk outlooks of the financial investment instruments such as gold, stock and dollar when it comes to the balance preferences between risk and return in the preference of the financial investment instruments. The aim of the study is to compare the risks in the returns of gold, dollar and stocks as investment instruments in Turkish Economy and to compare these investment instruments to the consumer price index, which is a value indicator of the domestic currency, between 1987 and 2019. The dataset consists of 396 observations for each variable. These data were analyzed by using the Eviews 10 software. Accordingly, the ARMA models with optimal performance, which were established over the compiled monthly percentage changes of the variables of gold, BIST100, the exchange rate of Dollar and consumer price index, were determined. In the selected optimal ARMA models, the presence of the effect of autoregressive conditional heteroskedasticity was investigated, and autoregressive conditional heteroskedasticity was found. For ARCH-GARCH volatility models that were obtained from the residuals of the ARMA model, the optimal models were specified in terms of the ARCH-GARCH orders. In these models, the ARCH effect test was repeated, and it was determined that the models could model the volatility in the series since no significant ARCH effects were observed. As a result of the comparison of the findings related to the volatility models, the most risk-free alternative investment instrument was found to be BIST100, and BIST100 was followed by gold and Dollar in respect of being influenced by the shocks of the previous period, the continuity of instability and the permanence of the shocks in monthly return series between January 1987 and December 2019. Regarding the risk in the inflation series obtained from the consumer price index, which is an indicator of the increase in domestic prices, it was observed that there is a higher risk compared to gold and BIST100 if the investment is made in Turkish Lira, however, the risk is lower when compared to Dollar.