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Is gold a safe haven? International evidence

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  • Baur, Dirk G.
  • McDermott, Thomas K.

Abstract

The aim of this paper is to examine the role of gold in the global financial system. We test the hypothesis that gold represents a safe haven against stocks of major emerging and developing countries. A descriptive and econometric analysis for a sample spanning a 30Â year period from 1979 to 2009 shows that gold is both a hedge and a safe haven for major European stock markets and the US but not for Australia, Canada, Japan and large emerging markets such as the BRIC countries. We also distinguish between a weak and strong form of the safe haven and argue that gold may act as a stabilizing force for the financial system by reducing losses in the face of extreme negative market shocks. Looking at specific crisis periods, we find that gold was a strong safe haven for most developed markets during the peak of the recent financial crisis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1886-1898

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1886-1898

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Gold Safe haven Financial markets Uncertainty;

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References

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  1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, 05.
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  3. Markwat, T.D. & Kole, H.J.W.G. & Dijk, D.J.C. van, 2008. "Contagion as Domino Effect in Global Stock Markets," Research Paper ERS-2008-071-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  4. Samartín Sáenz, Margarita & Hasman, Augusto, 2008. "Information acquisition and financial contagion," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7593, Universidad Carlos III de Madrid.
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  7. Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, 04.
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  11. Brian M Lucey & Edel Tully & Valerio Poti, 2005. "International Portfolio Formation, Skewness & the Role of Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp030, IIIS.
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  14. Rustam Ibragimov & Johan Walden, 2006. "The Limits of Diversification When Losses May Be Large," Harvard Institute of Economic Research Working Papers 2104, Harvard - Institute of Economic Research.
  15. Mardi Dungey & Renee Fry & Vance Martin & Brenda González-Hermosillo, 2004. "Empirical Modeling of Contagion: A Review of Methodologies," IMF Working Papers 04/78, International Monetary Fund.
  16. Chandar, Nandini & Patro, Dilip K. & Yezegel, Ari, 2009. "Crises, contagion and cross-listings," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1709-1729, September.
  17. Christian Upper, 2001. "How safe was the "Safe Haven"? Financial market liquidity during the 1998 turbulences," BIS Papers chapters, in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 241-266 Bank for International Settlements.
  18. Walden, Johan & Ibragimov, Rustam, 2007. "The limits of diversification when losses may be large," Scholarly Articles 2624460, Harvard University Department of Economics.
  19. Christophe Faugere & Julian Van Erlach, 2004. "The Price of Gold: A Global Required Yield Theory," Finance 0403003, EconWPA.
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