Research article Special Issues

Hedging Market Volatility with Gold

  • Received: 24 July 2017 Accepted: 16 September 2017 Published: 12 October 2017
  • The 2008 financial crisis refocused investors' attention to several safe-haven assets, most notably gold and US Treasuries. We compare the role of these two assets as potential hedge instruments for thirteen major indexes' returns and their volatilities. Our study extends the literature by using gold returns purged from the effects of being denominated in US dollars. We also utilize seventeen different volatility indexes to include US and international equities as well as currencies instead of the common S & P-500 index. While gold and Treasuries are comparable in their correlation with contemporaneous market returns, Treasuries seem to be safe haven asset of choice. Gold is more correlated than Treasuries in terms of lead-lag relationships with market returns as well as market volatility indexes.

    Citation: Mehmet F. Dicle, John D. Levendis. Hedging Market Volatility with Gold[J]. Quantitative Finance and Economics, 2017, 1(3): 253-271. doi: 10.3934/QFE.2017.3.253

    Related Papers:

  • The 2008 financial crisis refocused investors' attention to several safe-haven assets, most notably gold and US Treasuries. We compare the role of these two assets as potential hedge instruments for thirteen major indexes' returns and their volatilities. Our study extends the literature by using gold returns purged from the effects of being denominated in US dollars. We also utilize seventeen different volatility indexes to include US and international equities as well as currencies instead of the common S & P-500 index. While gold and Treasuries are comparable in their correlation with contemporaneous market returns, Treasuries seem to be safe haven asset of choice. Gold is more correlated than Treasuries in terms of lead-lag relationships with market returns as well as market volatility indexes.


    加载中
    [1] Anand R, Madhogaria S (2012) Is gold a safe-haven?-An econometric analysis. Procedia Econ Financ 1: 24-33. doi: 10.1016/S2212-5671(12)00005-6
    [2] Arouri MEH, Lahiani A, Nguyen DK (2015)World gold prices and stock returns in China: Insights for hedging and diversification strategies. Econ Model 44: 273-282.
    [3] Baker SA, Tassel RCV (1985) Forecasting the price of gold: A fundamentalist approach. Atl Econ J 13: 43-51.
    [4] Batten JA, Ciner C, Lucey BM (2014) On the economic determinants of the goldinflation relation. Resour Policy 41: 101-108. doi: 10.1016/j.resourpol.2014.03.007
    [5] Baur DG, Lucey BM (2010a) Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financ Rev 45: 217-229.
    [6] Baur DG, McDermott TK (2010b) Is gold a safe haven? International evidence. J Bank Financ 34: 1886-1898.
    [7] Baur DG (2012) Asymmetric volatility in the gold market. J Altern Invest 14: 26-38. doi: 10.3905/jai.2012.14.4.026
    [8] Beckmann J, Czudaj R (2013) Gold as an inflation hedge in a time-varying coeffcient framework. North Am J Econ Financ 24: 208-222. doi: 10.1016/j.najef.2012.10.007
    [9] Beckmann J, Berger T, Czuda R (2015) Does gold act as a hedge or a safe haven for stocks? A smooth transition approach. Econ Model 48: 16-24.
    [10] Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Political Econ 637-654.
    [11] Black KH (2006) Improving hedge fund risk exposures by hedging equity market volatility, or how the VIX ate my kurtosis. J Trading 1: 6-15.
    [12] Bollerslev T (1986) Generalized autoregressive conditional heteroskedasticity. J Econ 31: 307-327. doi: 10.1016/0304-4076(86)90063-1
    [13] Bredin D, Conlon T, Potì V (2015) Does gold glitter in the long-run? Gold as a hedge and safe haven across time and investment horizon. Int Rev Financ Anal 41: 320-328.
    [14] Cai J, Cheung YL, Wong MSC (2001) What moves the gold market? J Futur Mark 21: 257-278. doi: 10.1002/1096-9934(200103)21:3<257::AID-FUT4>3.0.CO;2-W
    [15] Capie F, Mills TC, Wood G (2005) Gold as a hedge against the dollar. J Int Financ Mark, Inst Money 15: 343-352. doi: 10.1016/j.intfin.2004.07.002
    [16] Christie-David R, Chaudhry M, Koch TW (2000) Do macroeconomics news releases affect gold and silver prices? J Econ Bus 52: 405-421. doi: 10.1016/S0148-6195(00)00029-1
    [17] Chua JH, Sick G, Woodward RS (1990) Diversifying with gold stocks. Financ Anal J 46: 76-79.
    [18] Ciner C, Gurdgie C, Lucey BM (2013) Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates. Int Rev Financ Anal 29: 202-211. doi: 10.1016/j.irfa.2012.12.001
    [19] Cohen G, Qadan M (2010) Is gold still a shelter to fear? Am J Soc Manag Sci 1: 39-43.
    [20] Coudert V, Raymond H (2011) Gold and financial assets: Are there any safe havens in bear markets. Econ Bull 31: 1613-1622.
    [21] Dee J, Li L, Zheng Z (2013) Is gold a hedge or a safe haven? Evidence from inflation and stock market. Int J Dev Sustain 2: 12-27.
    [22] Engle RF (1982) Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econ: J Econ Soc 987-1007.
    [23] Engle R (2002) Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. J Bus Econ Stat 20: 339-350. doi: 10.1198/073500102288618487
    [24] Ghazali MF, Lean HH, Bahari Z (2013) Is gold a hedge or a safe haven? An empirical evidence of gold and stocks in Malaysia. Int J Bus Soc 14: 428.
    [25] Ghosh D, Levin EJ, Macmillan (2004) Gold as an inflation hedge? Stud Econ Financ 22: 1-25.
    [26] Granger CWJ (1969) Investigating causal relations by econometric models and cross-spectral methods. Econ: Je Econ Soc 424-438.
    [27] Gürgün G, Ünalmış İ(2014) Is gold a safe haven against equity market investment in emerging and developing countries? Financ Res Lett 11: 341-348.
    [28] Hillier D, Draper P and Faff R (2006) Do precious metals shine? An investment perspective. Financ Anal J 62: 98-106.
    [29] Hood M, Malik F (2013) Is gold the best hedge and a safe haven under changing stock market volatility? Rev Financ Econ 22: 47-52. doi: 10.1016/j.rfe.2013.03.001
    [30] Jaffe JF (1989) Gold and gold stocks as investments for institutional portfolios. Financ Anal J 45: 53-59.
    [31] Joy M (2011) Gold and the US dollar: Hedge or haven? Financ Res Lett 8: 120-131. doi: 10.1016/j.frl.2011.01.001
    [32] 31. Kaufmann TD, Winters RA (1989) The price of gold: A simple model. Resour Policy 15: 309-313. doi: 10.1016/0301-4207(89)90004-4
    [33] 32. Koutsoyiannis A (1983) A short-run pricing model for a speculative asset, tested with data from the gold bullion market. Appl Econ 15: 563-581. doi: 10.1080/00036848300000037
    [34] 33. Lundblad C (2007) The risk return tradeoff in the long run: 1836-2003. J Financ Econ 85: 123-150. doi: 10.1016/j.jfineco.2006.06.003
    [35] 34. McCown JR, Zimmerman JR. Is Gold a Zero-Beta Asset? Analysis of the Investment Potential of Precious Metals, SSRN eLibrary (English), 2006. Available at SSRN: http://ssrn.com/paper=920496.
    [36] 35. McDonald JG, Solnick BH (1977) Valuation and strategy for gold stocks. J Portf Manag 3: 29-33. doi: 10.3905/jpm.1977.408606
    [37] 36. Mishra PK, Das JR, Mishra SK (2010) Gold price volatility and stock market returns in India. Am J Sci Res 9: 47-55.
    [38] 37. Papadamou S, Markopoulos T (2014) Investigating intraday interdependence between gold, silver and three major currencies: The Euro, British Pound and Japanese Yen. Int Adv Econ Res 20: 399-410. doi: 10.1007/s11294-014-9490-z
    [39] 38. Qadan M, Yagil J (2012) Fear sentiments and gold price: Testing causality in-mean and in-variance. Appl Econ Lett 19: 363-366. doi: 10.1080/13504851.2011.579053
    [40] 39. Ranaldo A, Soderlind P (2010) Safe haven currencies. Rev Financ 14: 385-. doi: 10.1093/rof/rfq007
    [41] 40. Reboredo JC (2013a) Is gold a safe haven or a hedge for the US dollar? Implications for risk management. J Bank Financ 37: 2665-2676.
    [42] 41. Reboredo JC (2013b) Is gold a hedge or safe haven against oil price movements? Res Policy 38: 130-137.
    [43] 42. Roache SK, Rossi M (2010) The effects of economic news on commodity prices. Q Rev Econ Financ 50: 377-385. doi: 10.1016/j.qref.2010.02.007
    [44] 43. Scott-Ram R (2002) Managing portfolio risk with gold. World Gold Council, London. Sherman EJ (1982) Gold: A conservative, prudent diversifier. J Portf Manage 8: 21-27.
    [45] 44. Sherman EJ (1982) Gold: A conservative, prudent diversifier. J Portf Manage 8: 21-27.
    [46] 45. Sherman EJ (1983) A gold pricing model. J Portf Manag 9: 68-70.
    [47] 46. Sjaastad LA, Scacciavillani F (1996) The price of gold and the exchange rate. J Int Money Financ 15: 879-897. doi: 10.1016/S0261-5606(96)00045-9
    [48] 47. Sjaastad LA (2008) The price of gold and the exchange rates: Once again. Res Policy 33: 118-124. doi: 10.1016/j.resourpol.2007.10.002
    [49] 48. Wang KM, Lee YM, Thi TBN (2011) Time and place where gold acts as an inflation hedge: An application of long-run and short-run threshold model. Econ Model 28: 806-819. doi: 10.1016/j.econmod.2010.10.008
    [50] 49. Whaley RE (1993) Derivatives on market volatility: Hedging tools long overdue. J Deriv 1: 71-84. doi: 10.3905/jod.1993.407868
  • Reader Comments
  • © 2017 the Author(s), licensee AIMS Press. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0)
通讯作者: 陈斌, bchen63@163.com
  • 1. 

    沈阳化工大学材料科学与工程学院 沈阳 110142

  1. 本站搜索
  2. 百度学术搜索
  3. 万方数据库搜索
  4. CNKI搜索

Metrics

Article views(3448) PDF downloads(819) Cited by(6)

Article outline

Figures and Tables

Tables(9)

Other Articles By Authors

/

DownLoad:  Full-Size Img  PowerPoint
Return
Return

Catalog