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Financial market risk and gold investment in an emerging market: the case of Malaysia

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  • Mansor H. Ibrahim
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    Abstract

    Purpose – The purpose of this paper is to examine the relation between gold return and stock market return and whether its relation changes in times of consecutive negative market returns for an emerging market, Malaysia. Design/methodology/approach – The paper applies the autoregressive distributed model to link gold returns to stock returns with TGARCH/EGARCH error specification using daily data from August 1, 2001 to March 31, 2010, a total of 2,261 observations. Findings – A significant positive but low correlation is found between gold and once-lagged stock returns. Moreover, consecutive negative market returns do not seem to intensify the co-movement between the gold and stock markets as normally documented among national stock markets in times of financial turbulences. Indeed, there is some evidence that the gold market surges when faced with consecutive market declines. Practical implications – Based on these results, there are potential benefits of gold investment during periods of stock market slumps. The findings should prove useful for designing financial investment portfolios. Originality/value – The paper evaluates the role of gold from a domestic perspective, which should be more relevant to domestic investors in guarding against recurring heightened stock market risk.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1753-8394&volume=5&issue=1&articleid=17024831&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Islamic and Middle Eastern Finance and Management.

    Volume (Year): 5 (2012)
    Issue (Month): 1 (April)
    Pages: 25-34

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    Handle: RePEc:eme:imefpp:v:5:y:2012:i:1:p:25-34

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Related research

    Keywords: Correlations; Emerging markets; Gold; Gold investment; Investments; Malaysia; Market return; Market risk; Returns; Stock markets;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Dirk G. Baur & Brian M. Lucey, 2007. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp198, IIIS.
    2. Nam, Kiseok & Washer, Kenneth M. & Chu, Quentin C., 2005. "Asymmetric return dynamics and technical trading strategies," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 391-418, February.
    3. Koutmos, Gregory & Martin, Anna D., 2003. "Asymmetric exchange rate exposure: theory and evidence," Journal of International Money and Finance, Elsevier, vol. 22(3), pages 365-383, June.
    4. Hasman, Augusto & Samartín, Margarita, 2008. "Information acquisition and financial contagion," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2136-2147, October.
    5. Lobo, Bento J, 2000. "Asymmetric Effects of Interest Rate Changes on Stock Prices," The Financial Review, Eastern Finance Association, vol. 35(3), pages 125-43, August.
    6. 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.
    7. Pagan, Jose A. & Soydemir, Gokce A., 2001. "Response asymmetries in the Latin American equity markets," International Review of Financial Analysis, Elsevier, vol. 10(2), pages 175-185.
    8. Dirk G. Baur & Thomas K. McDermott, . "Is gold a safe haven? International evidence," The Institute for International Integration Studies Discussion Paper Series iiisdp310, IIIS.
    9. Bahng, Joshua Seungwook & Shin, Seung-myo, 2003. "Do stock price indices respond asymmetrically?: Evidence from China, Japan, and South Korea," Journal of Asian Economics, Elsevier, vol. 14(4), pages 541-563, August.
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