Is gold a safe haven or a hedge for the US dollar? Implications for risk management

doi:10.1016/J.JBANKFIN.2013.03.020

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Is gold a safe haven or a hedge for the US dollar? Implications for risk management

Journal Article•DOI•

Is gold a safe haven or a hedge for the US dollar? Implications for risk management

Juan C. Reboredo¹•Institutions (1)

University of Santiago de Compostela¹

01 Aug 2013-Journal of Banking and Finance (North-Holland)-Vol. 37, Iss: 8, pp 2665-2676

TL;DR: In this paper, the role of gold as a safe haven or hedge against the US dollar (USD) using copulas to characterize average and extreme market dependence between gold and the USD was assessed.

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Abstract: We assess the role of gold as a safe haven or hedge against the US dollar (USD) using copulas to characterize average and extreme market dependence between gold and the USD. For a wide set of currencies, our empirical evidence revealed (1) positive and significant average dependence between gold and USD depreciation, consistent with the fact that gold can act as hedge against USD rate movements, and (2) symmetric tail dependence between gold and USD exchange rates, indicating that gold can act as an effective safe haven against extreme USD rate movements. We evaluate the implications for mixed gold-currency portfolios, finding evidence of diversification benefits and downside risk reduction that confirms the usefulness of gold in currency portfolio risk management.

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Journal Article•DOI•

Coronavirus (COVID-19) - An epidemic or pandemic for financial markets.

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Mohsin Ali¹, Nafis Alam², Syed Aun R. Rizvi³•Institutions (3)

Taylors University¹, Asia Pacific University of Technology & Innovation², Lahore University of Management Sciences³

16 May 2020-Journal of Behavioral and Experimental Finance

TL;DR: Investigation of financial markets globally in terms of their decline and volatility as Coronavirus epicentre moved from China to Europe and then to the US suggests that the earlier epicentres China has stabilised while the global markets have gone into a freefall especially in the later phase of the spread.

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408 citations

Cites background from "Is gold a safe haven or a hedge for..."

...Gold which remained reasonably less volatile in epidemic period started showing a decline in returns during pandemic period but in terms of volatility, it is found to be the least volatile supporting the notion of “Gold a safe-haven asset” (Reboredo, 2013)....
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Journal Article•DOI•

Dynamic spillover effects among crude oil, precious metal, and agricultural commodity futures markets

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Sang Hoon Kang¹, Ron McIver², Seong-Min Yoon¹•Institutions (2)

Pusan National University¹, University of South Australia²

01 Feb 2017-Energy Economics

TL;DR: In this article, the authors examined spillover effects among six commodity futures markets by employing the multivariate DECO-GARCH model and the spillover index and found that the spillovers increased sharply during economic and financial turmoil, diminishing the benefits of international portfolio diversification for investors.

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360 citations

Cites background from "Is gold a safe haven or a hedge for..."

...Other researchers have investigated the commodity cross-market linkages between the oil and goldmarkets (e.g., Soytas et al., 2009; Reboredo, 2013; Yaya et al., 2016) and oil–agricultural relationships (e.g. Du et al., 2011; Nazlioglu et al., 2013; Mensi et al., 2014, 2015)....
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Journal Article•DOI•

Searching for safe-haven assets during the COVID-19 pandemic

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Qiang Ji¹, Dayong Zhang², Yuqian Zhao³•Institutions (3)

Chinese Academy of Sciences¹, Southwestern University of Finance and Economics², University of Essex³

01 Oct 2020-International Review of Financial Analysis

TL;DR: In this article, the authors introduce a sequential monitoring procedure to detect changes in the left-quantiles of asset returns, and to assess whether a tail change in the equity index can be offset by introducing a safe-haven asset into a simple mean-variance portfolio.

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358 citations

Cites background from "Is gold a safe haven or a hedge for..."

...Reboredo (2013) finds that gold can have both the role of a hedge and an effective safe haven....
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Journal Article•DOI•

Do global factors impact BRICS stock markets? A quantile regression approach

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Walid Mensi¹, Shawkat Hammoudeh², Juan C. Reboredo³, Duc Khuong Nguyen•Institutions (3)

Tunis University¹, Drexel University², University of Santiago de Compostela³

01 Jun 2014-Emerging Markets Review

TL;DR: The authors examined the dependence structure between the emerging stock markets of the BRICS countries and influential global factors using the quantile regression approach, and found that the stock markets exhibit dependence with the global stock and commodity markets (S&P index, oil, and gold) as well as changes in the U.S. stock market uncertainty (CBOE Volatility Index).

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347 citations

Cites background from "Is gold a safe haven or a hedge for..."

...The four BRIC countries are expected to account for 41% of the world’s stock market capitalization by 2030, when China is expected to overtake the United States in equity market capitalization, thus becoming the largest equity market in the world....
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...These global factors include: (i) the major global stock market represented by the S&P 500 stock returns; (ii) the WTI crude oil price expressed in U.S. dollars per barrel, which is a global benchmark for determining the prices of other light crudes in the United States (Reboredo, 2013a); (iii) the gold price expressed in U.S. dollars per ounce; (iv) the implied volatility of the S&P 500 index as represented by the VIX index; and (v) the U.S. economic policy uncertainty index....
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...Dynamic linkages of stock prices between the BRICs and the United States: Effects of the 2008–09 financial crisis....
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...…oil price expressed in U.S. dollars per barrel, which is a global benchmark for determining the prices of other light crudes in the United States (Reboredo, 2013a); (iii) the gold price expressed in U.S. dollars per ounce; (iv) the implied volatility of the S&P 500 index as represented by the…...
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...Kang and Ratti (2013) analyze the oil shocks, the economic policy uncertainty and the stock market return linkages, and find that for the United States an unanticipated increase in the policy uncertainty has a significant negative effect on the real stock returns....
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Journal Article•DOI•

Does gold act as a hedge or a safe haven for stocks? A smooth transition approach

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Joscha Beckmann¹, Joscha Beckmann², Theo Berger³, Robert Czudaj¹, Robert Czudaj⁴ - Show less +1 more•Institutions (4)

University of Duisburg-Essen¹, Kiel Institute for the World Economy², University of Bremen³, FOM University of Applied Sciences for Economics and Management⁴

01 Aug 2015-Economic Modelling

TL;DR: In this article, Baur and Lucey (2010) augmentation of their model to a smooth transition regression (STR) using an exponential transition function which splits the regression model into two extreme regimes: periods in which stock returns are on average and therefore allowing to test whether gold acts as a hedge for stocks, the other one accounts for extreme market conditions where the volatility of the stock returns is high.

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297 citations

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References

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Book•

An Introduction to Copulas

[...]

Roger B. Nelsen

01 Jan 1999

TL;DR: This book discusses the fundamental properties of copulas and some of their primary applications, which include the study of dependence and measures of association, and the construction of families of bivariate distributions.

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Abstract: The study of copulas and their role in statistics is a new but vigorously growing field. In this book the student or practitioner of statistics and probability will find discussions of the fundamental properties of copulas and some of their primary applications. The applications include the study of dependence and measures of association, and the construction of families of bivariate distributions. This book is suitable as a text or for self-study.

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Lawrence R. Glosten, Ravi Jagannathan, David E. Runkle

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Abstract: We find support for a negative relation between conditional expected monthly return and conditional variance of monthly return, using a GARCH-M model modified by allowing (1) seasonal patterns in volatility, (2) positive and negative innovations to returns having different impacts on conditional volatility, and (3) nominal interest rates to predict conditional variance. Using the modified GARCH-M model, we also show that monthly conditional volatility may not be as persistent as was thought. Positive unanticipated returns appear to result in a downward revision of the conditional volatility whereas negative unanticipated returns result in an upward revision of conditional volatility. THE TRADEOFF BETWEEN RISK and return has long been an important topic in asset valuation research. Most of this research has examined the tradeoff between risk and return among different securities within a given time period. The intertemporal relation between risk and return has been examined by several authors-Fama and Schwert (1977), French, Schwert, and Stambaugh (1987), Harvey (1989), Campbell and Hentschel (1992), Nelson (1991), and Chan, Karolyi, and Stulz (1992), to name a few. This paper extends that research.

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Harry Joe

01 Sep 1998-Biometrics

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Abstract: Introduction. Aspects of Interpretation. Technical Considerations. Statistical Analysis. Special Methods for Joint Responses. Some Examples. Strategical Aspects. More Specialized Topics. Appendices.

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Zhuanxin Ding¹, Clive W. J. Granger¹, Robert F. Engle¹•Institutions (1)

University of California, San Diego¹

01 Jun 1993-Journal of Empirical Finance

TL;DR: In this paper, a Monte-Carlo analysis of stock market returns was conducted and it was found that not only there is substantially more correlation between absolute returns than returns themselves, but the power transformation of the absolute return also has quite high autocorrelation for long lags.

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3,462 citations

Journal Article•DOI•

Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?

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Victor DeMiguel¹, Lorenzo Garlappi², Raman Uppal¹•Institutions (2)

London Business School¹, University of Texas at Austin²

01 May 2009-Review of Financial Studies

TL;DR: In this article, the authors evaluate the out-of-sample performance of the sample-based mean-variance model, and its extensions designed to reduce estimation error, relative to the naive 1-N portfolio.

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Abstract: We evaluate the out-of-sample performance of the sample-based mean-variance model, and its extensions designed to reduce estimation error, relative to the naive 1-N portfolio. Of the 14 models we evaluate across seven empirical datasets, none is consistently better than the 1-N rule in terms of Sharpe ratio, certainty-equivalent return, or turnover, which indicates that, out of sample, the gain from optimal diversification is more than offset by estimation error. Based on parameters calibrated to the US equity market, our analytical results and simulations show that the estimation window needed for the sample-based mean-variance strategy and its extensions to outperform the 1-N benchmark is around 3000 months for a portfolio with 25 assets and about 6000 months for a portfolio with 50 assets. This suggests that there are still many "miles to go" before the gains promised by optimal portfolio choice can actually be realized out of sample. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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2,809 citations