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Gold's hedging and safe haven properties for European stock and bond markets

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  • Vieira, Duarte Saldanha
  • Carvalho, Paulo Viegas de
  • Curto, José Dias
  • Laureano, Luís

Abstract

Most portfolio managers and risk managers strive to pick assets that lead to efficient financial risk mitigation; among them, gold stands out. This paper provides new insights into the role of gold as both a hedge and a safe haven towards European stock and sovereign bond markets. We base the analysis on evidence spanning the Euro's inception to the COVID-19 pandemic spread across Europe. To capture gold's hedge ability, we use the ADCC-GARCH and DCC-GARCH models, while for testing gold's safe haven property we use OLS regressions for different quantiles. Our results show that gold is a hedge for stocks, particularly after the Lehman Brothers collapse. Gold also shows strong safe haven properties for the most extreme negative returns (1% and 2.5% quantiles), and during specific events, such as the Lehman Brothers collapse, the Greek bailout and the Brexit Referendum. Still, for the COVID-19 pandemic outbreak, the results do not confirm this property. Conversely, for bonds, both hedge and safe haven effects are not strongly evident, with gold characterised, at best, as a weak hedge and safe haven. These findings have portfolio allocation implications for investors in European markets, namely fund and risk managers, by pointing out gold hedging and safe haven attributes.

Suggested Citation

  • Vieira, Duarte Saldanha & Carvalho, Paulo Viegas de & Curto, José Dias & Laureano, Luís, 2023. "Gold's hedging and safe haven properties for European stock and bond markets," Resources Policy, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:jrpoli:v:85:y:2023:i:pa:s0301420723005287
    DOI: 10.1016/j.resourpol.2023.103817
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    More about this item

    Keywords

    Gold market; Hedge; Safe haven; Stock market; Bond market;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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