Does gold act as a hedge or a safe haven for stocks? A smooth transition approach

Beckmann, Joscha; Berger, Theo; Czudaj, Robert

doi:10.1016/j.econmod.2014.10.044

Cited by 339 publications

(231 citation statements)

References 59 publications

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“…This is in line with the reported literature (e.g. Baur and McDermott 2010, Ciner et al 2013, Mensi et al 2015, Bredin et al 2015, Beckmann et al 2015, Śmiech and Papież 2016, Raza et al 2016. However, the main exceptions are the extreme bearish conditions These findings suggest that gold provides hedging and diversification benefits to the major stock markets of the investment universe (e.g.…”

Section: Estimates Of the Qq Approachsupporting

confidence: 92%

“…On other hand, beauty of gold is to love the bad news, and in response to adverse stock market movement its rising prices compensate the portfolio losses (Arouri et al 2015, Beckmann et al 2015, Śmiech and Papież 2016, Chkili 2016, Basher and Sadorsky 2016, Raza et al 2016. Also, compensate investors for many deterioration in purchasing power due to inflation or currency depreciation (Wang and Lee 2016, Aye et al 2016, Iqbal et al 2016.…”

Section: Related Literaturementioning

confidence: 99%

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Dependence of stock markets with gold and bonds under bullish and bearish market states

et al. 2017

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This paper examines the dependence of gold and benchmark bonds with ten stock markets including five larger developed markets (e.g. USA, UK, Japan, Canada and Germany) and five Eurozone peripheral GIPSI countries (Greece, Ireland, Portuguese, Spain and Ireland) stock markets. We use a novel quantile-on-quantile (QQ) approach to construct the dependence estimates of the quantiles of gold and bond with the quantiles of stock markets. The QQ approach, recently developed by Sim and Zhou (2015), captures the dependence between the entire distributions of financial assets and uncovers some nuance features of the relationship. The empirical findings primarily show that gold is strong hedge and diversifier for the stock portfolio except when both the markets are under stress. Further, the flight to safety phenomenon is shortlived because national benchmark bonds exhibit a positive dependence with their respective countries stock indices at various quantiles. Unlike the existing literature, the QQ approach suggest that bonds act as safe havens for the stock portfolio but gold does not. Our findings also suggest that dependence between stock-gold and stock-bond pairs is not uniform and this relationship is market state (e.g. bearish, mild bearish, optimistic or bullish) and country specific.

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Section: Estimates Of the Qq Approachsupporting

confidence: 92%

Section: Related Literaturementioning

confidence: 99%

Dependence of stock markets with gold and bonds under bullish and bearish market states

et al. 2017

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“…A number of existing studies have shown evidence of the hedging, diversifying and safe haven potential for stocks and bonds (e.g., Baur and McDermott, 2010;Baur and Lucey, 2010;Beckmann et al, 2015;Gürgün and Ünalmış, 2014;Bredin et al, 2015). For instance, Baur and McDermott (2010) investigate the role of gold in the global financial system with a focus on a sample of major developed and emerging markets (BRIC) and reported gold's safe-haven status with respect to stock market movements over the period 1979-2009, except for Australia, Canada and Japan.…”

Section: Introductionmentioning

confidence: 99%

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

Bekiros

Boubaker²,

Nguyen

et al. 2017

Journal of International Money and Finance

165

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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.

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“…(i) Baur and McDermott's (2010) paper, in which the analysis of daily, weekly and monthly rates of return in the period between 1979 and do 2009 lead to the conclusion that gold is a hedge and a safe haven for assets in European countries and in the USA, but is neither a hedge nor a safe haven for assets in developing countries and in Australia, Canada and Japan, (ii) Beckmann, Berger and Czudaj's (2015) paper, in which it is concluded, on the basis of the analysis of monthly rates of return in the period between 1970 and 2012, that: gold is a strong hedge for assets in the euro area, Indonesia, Russia and Turkey; gold is not a hedge for assets in China and Germany; gold is a hedge for assets in the remaining economies; gold is a strong safe haven for assets in India and Great Britain and is not a hedge in the euro area, Indonesia, and Russia.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Joy (2011), Ciner, Gurdgiev andLucey (2013) use a DCC-GARCH model, while Reboredo (2013a), and Reboredo (2013b) use the copula function and dependencies in the tails of distribution to define the relations in turmoil. Beckmann, Berger and Czudaj (2015) use two-regime threshold model (smooth transition regression), in which one regime corresponds to normal market conditions, while the other to a market in crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

In Search of Hedges and Safe Havens in Global Financial Markets

Wanat

Śmiech

Papież

2016

Statistics in Transition New Series

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The aim of the paper is to search for hedges and safe havens within three instrument classes: assets (represented by the S&P500 index), gold and oil prices, and dollar exchange rates. Weekly series of returns of all the instruments from the period January 1995 -June 2015 are analysed. The study is based on conditional correlations between the instruments in different market regimes obtained with the use of copula-DCC GARCH models. It is assumed that different market regimes will be identified by statistical clustering techniques; however, only conditional variances (without conditional covariances) will be taken into account. The reason for this assumption is connected with the fact that variances can be understood as market risk, and, as such, are a good indicator of market conditions. A considerable advantage of such an approach is the lack of need to determine the number of market regimes, as it is established by clustering quality measures. What is more, the methodology used in the paper makes it possible to treat the relations between instruments symmetrically. The results obtained in the study reveal that only dollar exchange rates can be treated as a (strong) hedge and a (strong) safe haven for other instruments, while gold and oil are a hedge for assets.

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Does gold act as a hedge or a safe haven for stocks? A smooth transition approach

Cited by 339 publications

References 59 publications

Dependence of stock markets with gold and bonds under bullish and bearish market states

Dependence of stock markets with gold and bonds under bullish and bearish market states

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

In Search of Hedges and Safe Havens in Global Financial Markets

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