Behavioural Financial Theories of Gold Prices during the Financial Crisis, 2007-09 in India

Gold prices are considered relatively stable than other commodities but during times of crisis, it can be proven to be volatile. This research paper demonstrates the volatility of gold prices in India during the Financial Crisis of 2008 by using coefficient of variation. When comparing the coefficient of variation for the period during the crisis (2007-09) and the normal growth period (2000-02), we observe that the volatility is higher in the crisis period. The Financial Crisis of 2008 affected the Indian economy due to which the growth of the economy slowed down, interest rates were decreased, rupee weakened against dollars, exports and imports reduced. Along with the influence of changing economic factors, investor behaviour also contributed to much of this volatility of gold prices. Behavioural financial theories like prospect theory and heuristic decision process theory have been used to explain the volatility of gold prices during the crisis period.