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Gold and Islamic stocks: A hedge and safe haven comparison in time frequency domain for BRICS markets

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  • Naveed Raza
  • Ahmad Ibn Ibrahimy
  • Azwadi Ali
  • Sajid Ali

    (University of Malaysia-Terengganu, Malaysia)

Abstract

This paper investigates the role of safe haven assets i.e. gold and Islamic stocks in time-frequency domain for two different crises periods. Wavelet coherency squared coherence approach has been utilized on daily data of gold, DJIEM and stock returns of the BRICS markets for the period from January 1st 1996 to December 31st 2014. The results indicate that gold maintain its role as hedge for stock markets over short-run. In both crises periods, gold exhibits low correlation with stock markets. Over all, our results suggest that the hedge and safe haven ability of gold is market specific. Therefore, in Asian financial crises, gold proves as a strong safe haven for BRICS and Islamic index. However, in late 2005, gold prices start moving with BRICS equitey markets and show positive correlation for 32-128 days scale. This relationship effects gold’s ability to act as a financial protector against extreme negative shocks in global financial crises of 2007-09. In contrast, gold leads world Islamic emerging markets and displays negative relation across a range of frequencies and indicates safe haven effects for the returns of Islamic stock markets. This low correlation between gold and Islamic stock markets indicates that gold can provide diversification to the portfolios of Islamic stock markets. Panel cointegration analysis depicts that the Islamic emerging and BRICS equity markets are cointegrated and global investor should have to carefully monitor the risk associated with them. Based on these results we infer that gold investment has potential to safe guard the stock portfolios in short-run against extreme negative market shocks. However, in long-run, gold does not seem to be a strong safe haven. Further, Dow Jones world Islamic emerging market index shows low correlation with only conventional stock market of China. This suggests significant diversification benefits of Islamic stocks for Chinese investors.

Suggested Citation

  • Naveed Raza & Ahmad Ibn Ibrahimy & Azwadi Ali & Sajid Ali, 2016. "Gold and Islamic stocks: A hedge and safe haven comparison in time frequency domain for BRICS markets," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(6), pages 305-318, Special I.
    • Handle: RePEc:jda:journl:vol.50:year:2016:issue6:pp:305-318
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    3. Hussain Shahzad, Syed Jawad & Raza, Naveed & Shahbaz, Muhammad & Ali, Azwadi, 2017. "Dependence of stock markets with gold and bonds under bullish and bearish market states," Resources Policy, Elsevier, vol. 52(C), pages 308-319.
    4. Yousaf, Imran & Beljid, Makram & Chaibi, Anis & Ajlouni, Ahmed AL, 2022. "Do volatility spillover and hedging among GCC stock markets and global factors vary from normal to turbulent periods? Evidence from the global financial crisis and Covid-19 pandemic crisis," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    5. 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.
    6. 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.
    7. Wang, Peijin & Zhang, Hongwei & Yang, Cai & Guo, Yaoqi, 2021. "Time and frequency dynamics of connectedness and hedging performance in global stock markets: Bitcoin versus conventional hedges," Research in International Business and Finance, Elsevier, vol. 58(C).
    8. Ali, Sajid & Raza, Naveed & Vinh Vo, Xuan & Le, Van, 2022. "Modelling the joint dynamics of financial assets using MGARCH family models: Insights into hedging and diversification strategies," Resources Policy, Elsevier, vol. 78(C).
    9. Lin, Boqiang & Su, Tong, 2020. "The linkages between oil market uncertainty and Islamic stock markets: Evidence from quantile-on-quantile approach," Energy Economics, Elsevier, vol. 88(C).
    10. Hassan, Kamrul & Hoque, Ariful & Wali, Muammer & Gasbarro, Dominic, 2020. "Islamic stocks, conventional stocks, and crude oil: Directional volatility spillover analysis in BRICS," Energy Economics, Elsevier, vol. 92(C).

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    More about this item

    Keywords

    Gold; BRICS; Islamic stocks; Wavelet Coherency; Cointegration;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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