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Rare Disaster Risks and Gold over 700 Years: Evidence from Nonparametric Quantile Regressions

Author

Listed:
  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, Turkish Republic of North Cyprus, Via Mersin 10, Famagusta 99628, Turkey; Department of Economics, OSTIM Technical University, Ankara 06374, Turkey)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Jacobus Nel

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

Abstract

Using annual data on real gold returns and measures of rare disaster risks over the period of 1280 to 2016, we provide evidence of nonlinearity and regime changes in the relationship between the two variables of concern, over and above the existence of non-normality in the data. In light of these issues, we rely on a nonparametric quantile regression model to show that real gold returns can hedge against such risks, but only when the market is in its bullish-state, with it being negatively impacted in its bearish-phase. Understandably, our results have important implications for investors seeking refuge in the safe haven of gold during rare disaster events. In addition, our findings, would require theoreticians to develop new asset pricing models, which would incorporate the state-specific impact of rare disaster risks on gold.

Suggested Citation

  • Mehmet Balcilar & Rangan Gupta & Jacobus Nel, 2022. "Rare Disaster Risks and Gold over 700 Years: Evidence from Nonparametric Quantile Regressions," Working Papers 202231, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202231
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    More about this item

    Keywords

    Real gold returns; Rare disaster risks; Quantile regressions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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