IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v74y2021ics1057521921000090.html
   My bibliography  Save this article

Assessing the safe haven property of the gold market during COVID-19 pandemic

Author

Listed:
  • Salisu, Afees A.
  • Raheem, Ibrahim D.
  • Vo, Xuan Vinh

Abstract

This study examines the safe haven prowess of gold against some exogenous shocks due to the COVID-19 pandemic. We further make a comparison of our findings with those obtained for the period before it. Our results confirm the potential of gold market to serve as a safe haven during the pandemic albeit with a higher effectiveness before the pandemic. Further results suggest that gold consistently offers better safe haven properties than the US stocks as well as other precious metals like Silver, Palladium and Platinum regardless of the period. Finally, we find that the predictive model that accounts for uncertainties outperforms the benchmark model that ignores the same both for the in- and out-of-sample forecast analyses.

Suggested Citation

  • Salisu, Afees A. & Raheem, Ibrahim D. & Vo, Xuan Vinh, 2021. "Assessing the safe haven property of the gold market during COVID-19 pandemic," International Review of Financial Analysis, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000090
    DOI: 10.1016/j.irfa.2021.101666
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521921000090
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2021.101666?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Wu, Shan & Tong, Mu & Yang, Zhongyi & Derbali, Abdelkader, 2019. "Does gold or Bitcoin hedge economic policy uncertainty?," Finance Research Letters, Elsevier, vol. 31(C), pages 171-178.
    2. Reboredo, Juan C., 2013. "Is gold a safe haven or a hedge for the US dollar? Implications for risk management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2665-2676.
    3. Salisu, Afees A. & Raheem, Ibrahim D. & Ndako, Umar B., 2020. "The inflation hedging properties of gold, stocks and real estate: A comparative analysis," Resources Policy, Elsevier, vol. 66(C).
    4. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    5. Uddin, Gazi Salah & Shahzad, Syed Jawad Hussain & Boako, Gideon & Hernandez, Jose Areola & Lucey, Brian M., 2019. "Heterogeneous interconnections between precious metals: Evidence from asymmetric and frequency-domain spillover analysis," Resources Policy, Elsevier, vol. 64(C).
    6. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    7. Westerlund, Joakim & Narayan, Paresh Kumar, 2012. "Does the choice of estimator matter when forecasting returns?," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2632-2640.
    8. Narayan, Paresh Kumar & Liu, Ruipeng, 2015. "A unit root model for trending time-series energy variables," Energy Economics, Elsevier, vol. 50(C), pages 391-402.
    9. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    10. Boubaker, Heni & Cunado, Juncal & Gil-Alana, Luis A. & Gupta, Rangan, 2020. "Global crises and gold as a safe haven: Evidence from over seven and a half centuries of data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 540(C).
    11. Antonakakis, Nikolaos & Chatziantoniou, Ioannis & Filis, George, 2017. "Oil shocks and stock markets: Dynamic connectedness under the prism of recent geopolitical and economic unrest," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 1-26.
    12. Junttila, Juha & Pesonen, Juho & Raatikainen, Juhani, 2018. "Commodity market based hedging against stock market risk in times of financial crisis: The case of crude oil and gold," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 255-280.
    13. Reboredo, Juan C. & Rivera-Castro, Miguel A., 2014. "Can gold hedge and preserve value when the US dollar depreciates?," Economic Modelling, Elsevier, vol. 39(C), pages 168-173.
    14. He, Zhen & O'Connor, Fergal & Thijssen, Jacco, 2018. "Is gold a Sometime Safe Haven or an Always Hedge for equity investors? A Markov-Switching CAPM approach for US and UK stock indices," International Review of Financial Analysis, Elsevier, vol. 60(C), pages 30-37.
    15. Ciner, Cetin & Gurdgiev, Constantin & Lucey, Brian M., 2013. "Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 202-211.
    16. Hussain Shahzad, Syed Jawad & Bouri, Elie & Roubaud, David & Kristoufek, Ladislav, 2020. "Safe haven, hedge and diversification for G7 stock markets: Gold versus bitcoin," Economic Modelling, Elsevier, vol. 87(C), pages 212-224.
    17. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    18. Iqbal, Javed, 2017. "Does gold hedge stock market, inflation and exchange rate risks? An econometric investigation," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 1-17.
    19. Clark, Todd E. & McCracken, Michael W., 2001. "Tests of equal forecast accuracy and encompassing for nested models," Journal of Econometrics, Elsevier, vol. 105(1), pages 85-110, November.
    20. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    21. Bedoui, Rihab & Guesmi, Khaled & Kalai, Saoussen & Porcher, Thomas, 2020. "Diamonds versus precious metals: What gleams most against USD exchange rates?," Finance Research Letters, Elsevier, vol. 34(C).
    22. Salisu, Afees A. & Adediran, Idris, 2020. "Gold as a hedge against oil shocks: Evidence from new datasets for oil shocks," Resources Policy, Elsevier, vol. 66(C).
    23. Sakemoto, Ryuta, 2018. "Do precious and industrial metals act as hedges and safe havens for currency portfolios?," Finance Research Letters, Elsevier, vol. 24(C), pages 256-262.
    24. Lewellen, Jonathan, 2004. "Predicting returns with financial ratios," Journal of Financial Economics, Elsevier, vol. 74(2), pages 209-235, November.
    25. Li, Sile & Lucey, Brian M., 2017. "Reassessing the role of precious metals as safe havens–What colour is your haven and why?," Journal of Commodity Markets, Elsevier, vol. 7(C), pages 1-14.
    26. Bredin, Don & Conlon, Thomas & Potì, Valerio, 2015. "Does gold glitter in the long-run? Gold as a hedge and safe haven across time and investment horizon," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 320-328.
    27. Hood, Matthew & Malik, Farooq, 2013. "Is gold the best hedge and a safe haven under changing stock market volatility?," Review of Financial Economics, Elsevier, vol. 22(2), pages 47-52.
    28. Arnold, Stephan & Auer, Benjamin R., 2015. "What do scientists know about inflation hedging?," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 187-214.
    29. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
    30. Mark, Joy, 2011. "Gold and the US dollar: Hedge or haven?," Finance Research Letters, Elsevier, vol. 8(3), pages 120-131, September.
    31. Agyei-Ampomah, Sam & Gounopoulos, Dimitrios & Mazouz, Khelifa, 2014. "Does gold offer a better protection against losses in sovereign debt bonds than other metals?," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 507-521.
    32. Reboredo, Juan C., 2013. "Is gold a hedge or safe haven against oil price movements?," Resources Policy, Elsevier, vol. 38(2), pages 130-137.
    33. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
    34. Bouri, Elie & Shahzad, Syed Jawad Hussain & Roubaud, David & Kristoufek, Ladislav & Lucey, Brian, 2020. "Bitcoin, gold, and commodities as safe havens for stocks: New insight through wavelet analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 156-164.
    35. Qureshi, Saba & Rehman, Ijaz Ur & Qureshi, Fiza, 2018. "Does gold act as a safe haven against exchange rate fluctuations? The case of Pakistan rupee," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 685-708.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ihsan Erdem Kayral & Ahmed Jeribi & Sahar Loukil, 2023. "Are Bitcoin and Gold a Safe Haven during COVID-19 and the 2022 Russia–Ukraine War?," JRFM, MDPI, vol. 16(4), pages 1-22, April.
    2. Enilov, Martin & Mensi, Walid & Stankov, Petar, 2023. "Does safe haven exist? Tail risks of commodity markets during COVID-19 pandemic," Journal of Commodity Markets, Elsevier, vol. 29(C).
    3. Abdulsalam Abidemi Sikiru & Afees A. Salisu, 2022. "Assessing the hedging potential of gold and other precious metals against uncertainty due to epidemics and pandemics," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(4), pages 2199-2214, August.
    4. Akhtaruzzaman, Md & Boubaker, Sabri & Lucey, Brian M. & Sensoy, Ahmet, 2021. "Is gold a hedge or a safe-haven asset in the COVID–19 crisis?," Economic Modelling, Elsevier, vol. 102(C).
    5. Wen, Danyan & Wang, Yudong & Ma, Chaoqun & Zhang, Yaojie, 2020. "Information transmission between gold and financial assets: Mean, volatility, or risk spillovers?," Resources Policy, Elsevier, vol. 69(C).
    6. Youssef, Manel & Mokni, Khaled, 2021. "Oil-gold nexus: Evidence from regime switching-quantile regression approach," Resources Policy, Elsevier, vol. 73(C).
    7. Talbi, Marwa & Bedoui, Rihab & de Peretti, Christian & Belkacem, Lotfi, 2021. "Is the role of precious metals as precious as they are? A vine copula and BiVaR approaches," Resources Policy, Elsevier, vol. 73(C).
    8. Salisu, Afees A. & Vo, Xuan Vinh & Lucey, Brian, 2021. "Gold and US sectoral stocks during COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 57(C).
    9. Kaczmarek, Tomasz & Będowska-Sójka, Barbara & Grobelny, Przemysław & Perez, Katarzyna, 2022. "False Safe Haven Assets: Evidence From the Target Volatility Strategy Based on Recurrent Neural Network," Research in International Business and Finance, Elsevier, vol. 60(C).
    10. Salisu, Afees A. & Adediran, Idris, 2020. "Gold as a hedge against oil shocks: Evidence from new datasets for oil shocks," Resources Policy, Elsevier, vol. 66(C).
    11. Walid Mensi & Debasish Maitra & Refk Selmi & Xuan Vinh Vo, 2023. "Extreme dependencies and spillovers between gold and stock markets: evidence from MENA countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    12. Salisu, Afees A. & Ndako, Umar B. & Oloko, Tirimisiyu F., 2019. "Assessing the inflation hedging of gold and palladium in OECD countries," Resources Policy, Elsevier, vol. 62(C), pages 357-377.
    13. Raheem, Ibrahim D., 2021. "COVID-19 pandemic and the safe haven property of Bitcoin," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 370-375.
    14. Hoang, Thi-Hong-Van & Wong, Wing-Keung & Zhu, Zhenzhen, 2015. "Is gold different for risk-averse and risk-seeking investors? An empirical analysis of the Shanghai Gold Exchange," Economic Modelling, Elsevier, vol. 50(C), pages 200-211.
    15. Bilgin, Mehmet Huseyin & Gozgor, Giray & Lau, Chi Keung Marco & Sheng, Xin, 2018. "The effects of uncertainty measures on the price of gold," International Review of Financial Analysis, Elsevier, vol. 58(C), pages 1-7.
    16. Gomis-Porqueras, Pedro & Shi, Shuping & Tan, David, 2022. "Gold as a financial instrument," Journal of Commodity Markets, Elsevier, vol. 27(C).
    17. Mokni, Khaled & Youssef, Manel & Ajmi, Ahdi Noomen, 2022. "COVID-19 pandemic and economic policy uncertainty: The first test on the hedging and safe haven properties of cryptocurrencies," Research in International Business and Finance, Elsevier, vol. 60(C).
    18. Ali, Sajid & Bouri, Elie & Czudaj, Robert Lukas & Shahzad, Syed Jawad Hussain, 2020. "Revisiting the valuable roles of commodities for international stock markets," Resources Policy, Elsevier, vol. 66(C).
    19. Syed Jawad Hussain Shahzad & Naveed Raza & David Roubaud & Jose Arreola Hernandez & Stelios Bekiros, 2019. "Gold as Safe Haven for G-7 Stocks and Bonds: A Revisit," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(4), pages 885-912, December.
    20. O'Connor, Fergal A. & Lucey, Brian M. & Batten, Jonathan A. & Baur, Dirk G., 2015. "The financial economics of gold — A survey," International Review of Financial Analysis, Elsevier, vol. 41(C), pages 186-205.

    More about this item

    Keywords

    Gold; Safe haven; Predictability; Uncertainty; COVID-19;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F10 - International Economics - - Trade - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000090. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.