Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model

Wang, Kuan-Min; Lee, Yuan-Ming; Thi, Thanh-Binh Nguyen

doi:10.1016/j.econmod.2010.10.008

Cited by 128 publications

(71 citation statements)

References 32 publications

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“…The gold return-inflation relationship reflects the extent to which gold is popular in the economy relative to the fiat money and other investment assets (Chua and Woodward, 1982). Wang, et al (2011) also noted that the effectiveness of gold as a good hedge for both ex ante and post ante inflation depends on the economic conditions or characteristics of each country (Wang, et al, 2011). In this regard this study investigates whether gold price acts as a hedge to inflation for the case of USA.…”

Section: Introductionmentioning

confidence: 99%

“…The popular belief is that gold price tends to increase with the general price level hence providing a hedge against total inflation (Wang, et al, 2011;Dempster and Artigas, 2010).…”

Section: Introductionmentioning

confidence: 99%

“…They estimated regressions based on both full sample and subsample and find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions with the later property being short-lived. Wang et al (2011) analyze the short-run and long-run inflation hedging effectiveness of gold in the USA and Japan using monthly data spanning from January 1971 to January 2010.…”

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confidence: 99%

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Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

2016

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This paper investigates the inflation hedging role of gold price after controlling for the prices of other investment assets. We use annual data on the U.S. economy spanning from 1833 to 2013.We employ a recently developed flexible nonlinear approach that allows for potential 'interruption' in the long run equilibrium relationship in which the equilibrium term dynamics is modelled as an AR(1) depending upon an unobserved state process that is a stationary first-order Markov chain in two states, stationarity and non-stationarity. While, a battery of standard cointegration tests without and with breaks could not find evidence to support the inflation hedging role of gold, results from the flexible nonlinear approach indicate the existence of temporary cointegration between gold price and inflation during 1864, 1919, 1932, 1934, 1976, 1980 and 1982. The interruptions in the long-run relationship at different time periods seem to be associated with the different structural changes that affected the gold market.

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Section: Introductionmentioning

confidence: 99%

“…The popular belief is that gold price tends to increase with the general price level hence providing a hedge against total inflation (Wang, et al, 2011;Dempster and Artigas, 2010).…”

Section: Introductionmentioning

confidence: 99%

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confidence: 99%

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Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

2016

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“…Despite the limited body of literature regarding the effect of inflation on gold market price changes, several studies have analysed the impact of gold prices on predicting inflation (Mahdavi and Zhou 1997), the hedging effectiveness of gold and its ability to forecast future inflation (Godness et al 2016, Beckmann and Czudaj 2013, Wanga et al 2011, the long-term relationship between the price of gold and inflation (Ghosh et al 2004, Worthington andPahlavani 2007), the accuracy of gold as an indicator of future inflation over other measures (such as consumer price index and oil), its effectiveness in gauging and combating the effects of inflation on a portfolio (Ranson 2005), the ineffectiveness of unexpected changes in the CPI in relation to gold prices (Blose 2010) or the use of inflation to examine the dependence structure and linkages between gold and other commodity markets, especially oil (Zhang and Wei 2010, Narayan et al 2010, Reboredo 2013, Tiwari and Sahadudheen 2015.…”

Section: Introductionmentioning

confidence: 99%

Does inflation cause gold market price changes? evidence on the G7 countries from the tests of nonparametric quantile causality in mean and variance

et al. 2017

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This paper utilises the newly proposed nonparametric causality-in-quantiles test to examine the predictability of mean and variance of changes in gold prices based on inflation for G7 countries. The causality-in-quantiles approach permits us to test for not only causality in mean but also causality in variance. We start our investigation by utilising tests for nonlinearity. These tests identify nonlinearity, showing that the linear Granger causality tests are subject to misspecification error. Unlike tests of misspecified linear models, our nonparametric causality-in-quantiles tests find causality in mean and variance from inflation to gold market price changes between the 0.20 quantile and the 0.70 quantile, implying that very low-and high-price changes in gold markets are not related to inflation. These changes should be related to other sources, such as financial shocks and exchange market shocks. We find support that gold serves as a hedge against inflation, but only in the mid-quantile ranges, i.e., quantiles from 0.20 to 0.70. Our results show that gold does not serve as a hedge against inflation during periods when gold market price changes are very low or very high, which are respectively quiet and highly volatile periods.

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“…Tully and Lucey (2007) conclude that the US dollar is the major determinant for gold returns. Capie et al (2005) evidence the hedging quality of gold against the dollar while Sherman (1982); Baker and Van-Tassel (1985); Kaufmann and Winters (1989); Sjaastad and Scacciavillani (1996); McCown and Zimmerman (2006); Worthington and Pahlavani (2007); Wang et al (2011);Beckmann and Czudaj (2013) adduce the inflation-hedging trait of gold. Kutan and Aksoy (2004) contrarily document that gold does not carry the inflation hedging quality in Turkey.…”

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confidence: 99%

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

Gencer¹,

Musoglu²

2014

boun

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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.

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Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model

Cited by 128 publications

References 32 publications

Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

Is gold an inflation-hedge? Evidence from an interrupted Markov-switching cointegration model

Does inflation cause gold market price changes? evidence on the G7 countries from the tests of nonparametric quantile causality in mean and variance

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

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