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Hedging Market Volatility with Gold

Loyola University New Orleans, College of Business, 6363 St. Charles Avenue, Box 15, New Orleans, LA 70118, USA

Special Issue: Volatility of Prices of Financial Assets

The 2008 financial crisis refocused investors’ attention to several safe-haven assets, mostnotably gold and US Treasuries. We compare the role of these two assets as potential hedge instrumentsfor thirteen major indexes’ returns and their volatilities. Our study extends the literature by usinggold returns purged from the effects of being denominated in US dollars. We also utilize seventeendifferent volatility indexes to include US and international equities as well as currencies instead ofthe common S&P-500 index. While gold and Treasuries are comparable in their correlation withcontemporaneous market returns, Treasuries seem to be safe haven asset of choice. Gold is morecorrelated than Treasuries in terms of lead-lag relationships with market returns as well as marketvolatility indexes.
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