Is gold a hedge and safe haven for stock market?

ABSTRACT

The paper aims to examine the hedge and safe haven properties of gold relative to Dow Jones stock industry indices using quantile-GARCH approach. Splitting the sample period into two sub-periods, our results show that the hedge and safe haven properties of gold have a changing nature. In a whole period (1980–2017), gold is not a hedge for Oil&Gas, Basic materials and Utilities; gold is a safe haven for almost all sectors except Technology. While in sub-period I (1980–1995) gold is not a hedge for Oil&Gas but a strong safe haven for all sectors. In sub-period II (1996–2017) gold is not a hedge for Oil&Gas, Basic materials and Utilities, also not a safe haven for Oil&Gas, Basic materials, Utilities, Telecom and Technology.

KEYWORDS:

• Gold
• stock market sectors
• safe haven
• hedge

JEL CLASSIFICATION:

• G10
• G11
• G14
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Competing interests statement

The authors declare no conflict of interests.

Notes

¹ The dummy variables D (…) are equal to one if the stock market is less than a certain threshold. If one of the parameters $C_1$, $C_2$or $C_3$ is significantly different from zero, there is evidence of a non-linear relationship between gold and the stock market. If the parameters in Equation (2b) are non-positive (including$C_0$), gold acts as a weak safe haven for the market under study. If the parameters are negative and statistically different from zero, gold functions as a strong safe haven. Gold is a hedge for the market under study if the parameter $C_0$ is zero (weak hedge) or negative (strong hedge) and the sum of the parameters$C_1$ to$C_3$ are not jointly positive exceeding the value of$C_0$.

Additional information

Funding

This work was supported by the Hunan Social Science Fund, China. ‘A Research on the Onshore and Offshore RMB Exchange Rates Co-movement and Spreads’ under [Grant No. 16JD11].