The Safe Haven Property of Gold in Turkish Financial Markets: An Investigation of the Global Financial Crisis

Abstract

This paper investigates whether gold acts as a safe haven, a hedge or a diversifier for stocks and bonds in Turkey. We employ the dynamic conditional correlation (DCC-GARCH) model which is a class of multivariate generalized autoregressive conditional heteroskedastic (GARCH) models. DCC-GARCH has two steps; the first step models the volatility dynamics in a univariate context and the second step involves computing dynamic correlations. We use daily data from June 2006 to November 2013, a period witnessing the most recent global financial crisis and its aftermath. Our univariate GARCH model results reveal that current volatility is conditional on past shocks and volatilities for gold, stocks and bonds in Turkey. In this study, we hypothesize that gold is a hedge if the gold and the asset class are uncorrelated or negatively correlated on average, while it is a safe haven if the correlations are negative in times of market stress. The second step analyses show that gold acts as a hedge on average and a safe haven during equity market downturns for stocks. Across bonds, we show that gold acts as a hedge on the average, however it is not a safe haven during turmoil periods. Our results are of significance for portfolio managers, international investors and policy makers.

Testing Safe Haven Assets for Türkiye in the Covid-19 Period

“…However, in the same study, gold was a weak hedging asset in Turkey between 2008 and 2013. Gencer and Musoğlu (2014) show that gold acts as a hedge for stocks (BIST100 index) and bonds (10-year maturity) but is not a safe haven. Akkoç and Civcir (2019) showed that the dynamic conditional correlation of the gold price with the BIST100 is significantly high.…”