Black swan events and safe havens: The role of gold in globally integrated emerging markets

Abstract

There is evidence to suggest that gold acts as both a hedge and a safe haven for equity markets over recent years, and particularly during crises periods. Our work extends the recent literature on hedging and diversification roles of gold by analyzing its interaction with the stock markets of the leading emerging economies, the BRICS. Whilst they generally exhibit a high growth rate, these economies still experience a pronounced vulnerability to external shocks, particularly to commodity price fluctuations. Using a multi-scale wavelet approach and a GARCH-based copula methodology, we mainly show evidence of: i) the time-scale co-evolvement patterns between BRICS stock markets and gold market, with some profound regions of concentrated extreme variations; and ii) a strong time-varying asymmetric dependence structure between those markets. These findings are essential for risk diversification and portfolio hedging strategies amongst the investigated markets.

Dynamic correlation and volatility spillovers across Chinese stock and commodity futures markets

“…The dynamics of commodity prices are an important component for investors seeking to diversify their stock portfolios, as they have weak or negative correlations with equity assets (Baur & Lucey, ; Bekiros, Boubaker, et al, ; Junttila et al, ; Mensi et al, ; Wen & Nguyen, ). This paper investigates the extent of volatility transmission, portfolio design, and portfolio risk management in three commodity futures and stock markets in China.…”

“…They offer different volatilities and have a weaker correlation with other financial assets (stocks and bonds) when macroeconomic shocks tend to push returns on commodity assets and investors' portfolios in opposite directions (Silvennoinen & Thorp, ; Hammoudeh, Nguyen, Reboredo, & Wen, ; Andreasson, Bekiros, Nguyen, & Uddin, ). For this reason, portfolio investors interested in adding commodity futures with weak or negative correlations with equity assets should provide better diversification benefits than those possible in a portfolio without commodities (Bekiros, Boubaker, Nguyen, & Uddin, ; Sadorsky, ). Therefore, investors are interested in examining the dynamics of commodity prices with the aim of designing strategies for optimal asset allocation, portfolio optimization, downside risk reduction, and hedging (Andreasson et al, ; Belousova & Dorfleitner, ; Karyotis & Alijani, ; Skiadopoulos, ; Vivian & Wohar, ).…”

“…Along with the existing literature on correlations between stock and commodity markets, recent empirical studies have addressed the role of commodities as a hedge, a diversifier, and a safe‐haven asset for stocks. For example, Bekiros, Boubaker, et al () use a multiscale wavelet approach and a GARCH‐based copula method to examine the role of gold in relation to the stocks of BRICS countries, especially during the 2008–2009 global financial crisis. Their results show that, during the global financial crisis, gold offered diversification benefits on BRICS stock portfolios, but it did not act as a hedge or a safe haven.…”

California's carbon market and energy prices: a wavelet analysis

“…The first one is located in the 20-34 week frequency band, and runs from the beginning of the sample until the third quarter of 2015 (in some areas, it is only significant at 10%). The second is located at lower frequencies (46)(47)(48)(49)(50)(51)(52)(53)(54)(55)(56)(57)(58) week period) and runs from mid-2015 until the end of 2016. In both regions, the phase difference is between 0 and π/2, showing that price returns of both variables are in-phase, with CO 2 leading.…”

Asymmetric correlation and hedging effectiveness of gold & cryptocurrencies: From pre-industrial to the 4th industrial revolution✰

“…There is empirical evidence showing that gold is a poor safe-haven or is not a safe-haven for emerging stock markets (see, e.g. Baur and McDermott, 2010 ; Beckmann et al., 2015 ; Bekiros et al., 2017 ). Co-movements between stock and commodity markets have intensified following the rapid financialisation of commodities ( Tang and Xiong, 2012 ; Delatte and Lopez, 2013 ; Adams and Glück, 2015 ).…”