Does gold hedge stock market, inflation and exchange rate risks? An econometric investigation

Iqbal, Javed

doi:10.1016/j.iref.2016.11.005

Cited by 121 publications

(57 citation statements)

References 12 publications

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“…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%

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: 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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“…Baur and Mcdermott (2010) also distinguished between a strong and a weak form of the hedge and the safe haven property (Beckmann et al 2015). Gürgün and Ünalmıs (2014);Beckmann et al (2015); Nguyen et al (2016);Iqbal (2017) and Shahzad et al (2017) all found that gold could act as a hedge and safe haven in emerging and developing countries, European stock markets, five Eurozone peripheral GIPSI countries, and Pakistan and India, respectively. For countries with a religion factor such as Malaysia and the GCC (Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates), the domestic Islamic gold account provided hedge and safe haven to sharia compliant stocks (Ghazali et al 2015;Mensi et al 2015Mensi et al , 2016.…”

Section: Related Literaturementioning

confidence: 99%

Does Gold Act as a Hedge and a Safe Haven for China’s Stock Market?

Chen

Wang

2017

IJFS

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This paper examines the dynamic relationships between gold and stock markets in China. Using daily gold and stock indexes data, we estimated the DCC-GARCH model for the five bear markets since 31 October 2002, and simultaneously used different segments of China's stock markets for analysis. Our main objective was to examine the time-varying correlations between gold and stock and to check the effectiveness of gold as a hedge or a safe haven for stocks. Results showed that: (1) the dynamic conditional correlations switched between positive and negative values over the periods under study; (2) due to the increasing investment demand of gold, the hedging effect of gold on China's stock market has strengthened remarkably. Gold acts as a safe haven for only the latest two of the five bear markets analyzed (12 June 2015-26 August 2015 and 22 December 2015-29 February 2016); and (3) for non-bear markets, gold does not offer good risk hedging.

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“…Baur & McDermott (2010) discovered that the role of gold as a safe haven is short lived and especially observed in daily fluctuations of developed markets but in lower frequencies like weekly or monthly, no such relationship exists. Iqbal (2017), added Pakistan's market to the population of markets in which this subject has been investigated. Hood and Malik (2013) focused on extreme situations in the stock market and found that in periods of extremely low or high volatility, gold does not have a negative correlation with the U.S. stock market.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Beckmann et al (2015) admited this problem, but ignored it. Iqbal (2017) in his model for investigating the relationship between gold and stock market also converted the global gold price into India and Pakistan currencies without considering the effects of exchange rate changes. But in the present research, in order to resolve this issue, we will consider the global gold price and exchange rate as other factors influencing the relationship between the domestic gold price and stock market in Iran.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Baur and Lucey (2010), Baur and McDermott (2010), Hood and Malik (2013), Lucey and Li (2015) and Iqbal (2017) manually classified stock market returns into categories based on a rule of thumb (e.g. 5%, 2.5% and 1% quantiles) and distinguished the relationship between stock market returns and gold price returns when the stock market return was at each of these categories.…”

Section: Research Methdologymentioning

confidence: 99%

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Gold-Stock Market Relationship: Emerging Markets versus Developed Markets

Seifoddini

Roodposhti

Kamali

2017

emaj

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We perform a comparative study on the gold-stock market relationship in U.S. stock market as a developed market and in Iran stock market as an emerging market. By considering appropriate variables for emerging markets and by providing a more proper methodology, we improve earlier studies. According to our findings, the relationship between stock market returns and gold price returns does not follow any specific regimes and that this relationship changes in short and long term returns. It is necessary to mention that in the present research, we did not consider this relationship in major structural changes in the economies and instead considered usual economic circumstances that investors are regularly faced with in their investment decisions.

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Does gold hedge stock market, inflation and exchange rate risks? An econometric investigation

Cited by 121 publications

References 12 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

Does Gold Act as a Hedge and a Safe Haven for China’s Stock Market?

Gold-Stock Market Relationship: Emerging Markets versus Developed Markets

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