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Safe haven, hedge and diversification for G7 stock markets: Gold versus bitcoin

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  • Hussain Shahzad, Syed Jawad
  • Bouri, Elie
  • Roubaud, David
  • Kristoufek, Ladislav

Abstract

We compare gold and Bitcoin for the G7 stock markets, finding that gold and Bitcoin have distinct safe haven and hedging characteristics. Gold is an undisputable safe haven and hedge for several G7 stock indices, whereas Bitcoin takes these two functions in Canada. The out-of-sample hedging effectiveness of gold is much superior to that of Bitcoin. Furthermore, we find that the conditional diversification benefits offered by gold to equity investments in the G7 markets are comparatively much higher and more stable than those of Bitcoin, especially in the lower return quantiles, i.e., when both the stock and gold markets are in a bearish state. Implications are further discussed.

Suggested Citation

  • Hussain Shahzad, Syed Jawad & Bouri, Elie & Roubaud, David & Kristoufek, Ladislav, 2020. "Safe haven, hedge and diversification for G7 stock markets: Gold versus bitcoin," Economic Modelling, Elsevier, vol. 87(C), pages 212-224.
    • Handle: RePEc:eee:ecmode:v:87:y:2020:i:c:p:212-224
    DOI: 10.1016/j.econmod.2019.07.023
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    More about this item

    Keywords

    Gold; Bitcoin; G7 stock indices; Safe haven; Hedging; Conditional diversification benefits;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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