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Is gold a hedge or safe haven for Islamic stock market movements? A Markov switching approach

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  • Chkili, Walid

Abstract

This paper uses the Markov switching approach to investigate the role of gold as a hedge or safe haven for Islamic stock market risk. Empirical results reveal on the one hand, the presence of two distinct regimes for all the considered markets, namely a low volatility regime and a high volatility regime. More precisely, the high volatility regime coincides with the major economic and political events that occurred during the period under study. On the other hand, evidence shows that gold can act as a weak hedge and a strong safe haven against extreme Islamic stock market movements. This result has significant implications for portfolio diversification and hedging strategy choice.

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  • Chkili, Walid, 2017. "Is gold a hedge or safe haven for Islamic stock market movements? A Markov switching approach," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 152-163.
    • Handle: RePEc:eee:mulfin:v:42-43:y:2017:i::p:152-163
    DOI: 10.1016/j.mulfin.2017.10.001
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    5. 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).
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    7. Alkhazali, Osamah M. & Zoubi, Taisier A., 2020. "Gold and portfolio diversification: A stochastic dominance analysis of the Dow Jones Islamic indices," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    8. Zhenghui Li & Zhiming Ao & Bin Mo, 2021. "Revisiting the Valuable Roles of Global Financial Assets for International Stock Markets: Quantile Coherence and Causality-in-Quantiles Approaches," Mathematics, MDPI, vol. 9(15), pages 1-18, July.
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    10. Chung Baek & Thomas Jackman, 2021. "Safe-haven assets for U.S. equities during the 2020 COVID-19 bear market," Economics and Business Letters, Oviedo University Press, vol. 10(3), pages 331-335.
    11. Walid Chkili, 2022. "The links between gold, oil prices and Islamic stock markets in a regime switching environment," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 169-186, March.
    12. Khan, Muhammad Asif & Khan, Farhad & Sharif, Arshian & Suleman, Muhammad Tahir, 2023. "Dynamic linkages between Islamic equity indices, oil prices, gold prices, and news-based uncertainty: New insights from partial and multiple wavelet coherence," Resources Policy, Elsevier, vol. 80(C).
    13. Ariannejad , Aghil & Tehrani , Reza, 2021. "Study on Gold as a Hedge or Safe Haven for the Stock Market by a Markov Switching Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(3), pages 377-398, September.
    14. Naeem, Muhammad Abubakr & Qureshi, Fiza & Arif, Muhammad & Balli, Faruk, 2021. "Asymmetric relationship between gold and Islamic stocks in bearish, normal and bullish market conditions," Resources Policy, Elsevier, vol. 72(C).
    15. Chiang, Thomas C., 2022. "The effects of economic uncertainty, geopolitical risk and pandemic upheaval on gold prices," Resources Policy, Elsevier, vol. 76(C).
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    17. Manel Hamdi & Walid Chkili, 2019. "An artificial neural network augmented GARCH model for Islamic stock market volatility: Do asymmetry and long memory matter?," Working Papers 13, Economic Research Forum, revised 21 Aug 2019.
    18. Wajdi Hamma & Ahmed Ghorbel & Anis Jarboui, 2021. "Hedging Islamic and conventional stock markets with other financial assets: comparison between competing DCC models on hedging effectiveness," Journal of Asset Management, Palgrave Macmillan, vol. 22(3), pages 179-199, May.
    19. Chang, Meng-Shiuh & Kung, Chih-Chun & Chen, Meng-Wei & Tian, Yuan, 2021. "Volatility regime, inverted asymmetry, contagion, and flights in the gold market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
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    More about this item

    Keywords

    Islamic stock market; Gold; Markov switching; Hedge; Safe haven;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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