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Hedging stock market risks: Can gold really beat bonds?

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  • Ma, Rufei
  • Sun, Bianxia
  • Zhai, Pengxiang
  • Jin, Yi

Abstract

This paper explores the impacts of stock market volatility on stock-bond and stock-gold correlations and compares the effectiveness of bonds with gold hedging the stock market risk. We propose an extensive DCC-MIDAS model, which takes the changes in stock market volatility as exogenously predetermined and accounts for its asymmetric impacts. The results show strong evidence that stock market volatility significantly and asymmetrically affects stock-bond and stock-gold correlations in different ways. Moreover, we prove that government bonds are more effective than gold in hedging stock return volatility, especially in the period of stock market turbulence. Our results suggest that government bonds are overall a better hedge for stock investors.

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  • Ma, Rufei & Sun, Bianxia & Zhai, Pengxiang & Jin, Yi, 2021. "Hedging stock market risks: Can gold really beat bonds?," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320317323
    DOI: 10.1016/j.frl.2020.101918
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