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Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

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  • Dirk G. Baur
  • Brian M. Lucey

Abstract

Is gold a hedge, defined as a security that is uncorrelated with stocks or bonds on average, or is it a safe haven, defined as a security that is uncorrelated with stocks and bonds in a market crash? We study constant and time-varying relations between U.S., U.K. and German stock and bond returns and gold returns to investigate gold as a hedge and a safe haven. We find that gold is a hedge against stocks on average and a safe haven in extreme stock market conditions. A portfolio analysis further shows that the safe haven property is short-lived. Copyright (c) 2010, The Eastern Finance Association.

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Bibliographic Info

Article provided by Eastern Finance Association in its journal Financial Review.

Volume (Year): 45 (2010)
Issue (Month): 2 (05)
Pages: 217-229

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Handle: RePEc:bla:finrev:v:45:y:2010:i:2:p:217-229

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Web page: http://www.easternfinance.org/
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  1. Hartmann, P. & Straetmans, S. & De Vries, C.G., 2001. "Asset Market Linkages in Crisis Periods," Papers 71, Quebec a Montreal - Recherche en gestion.
  2. Christophe Faugere & Julian Van Erlach, 2004. "The Price of Gold: A Global Required Yield Theory," Finance 0403003, EconWPA.
  3. Jesus Gonzalo & Jose Olmo, 2005. "Contagion Versus Flight To Quality In Financial Markets," Economics Working Papers we051810, Universidad Carlos III, Departamento de Economía.
  4. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
  5. Brian M Lucey, Valerio Poti, Edel Tully, 2006. "International Portfolio Formation, Skewness & the Role of Gold," Frontiers in Finance and Economics, SKEMA Business School, vol. 3(1), pages 49-68, June.
  6. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  7. Davidson, Sinclair & Faff, Robert & Hillier, David, 2003. "Gold factor exposures in international asset pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 271-289, July.
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