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Does Gold Act as a Hedge or a Safe Haven? Evidence from Pakistan

Author

Listed:
  • Bisharat Hussain Chang

    (Sukkur Institute of Business Administration, Sukkur)

  • Suresh Kumar Oad Rajput

    (Sukkur Institute of Business Administration, Sukkur)

  • Pervez Ahmed

    (Sukkur Institute of Business Administration, Sukkur)

  • Zafar Hayat

    (Senior Economist, IMF, Islamabad)

Abstract

This paper seeks to determine whether in Pakistan gold protects investors against the risks associated with the exchange rate, oil shocks, and stock returns by testing the hedging and safe haven properties of gold returns for the period from August 1997 to May 2016. The analysis has been done to understand the relationship between moderate (normal) and extremely tumultuous conditions through least squares and DCC-GARCH models. The key results indicate that gold acts as a hedge against exchange rate risk only whereas it acts as a safe haven in terms of the risks associated with the oil, exchange rate and stock market shocks—thereby indicating that investors can potentially invest in gold to hedge against losses emanating from the exchange rate, while they may avoid potential losses originating from turmoil conditions in terms of the exchange rate, oil, and stock markets.

Suggested Citation

  • Bisharat Hussain Chang & Suresh Kumar Oad Rajput & Pervez Ahmed & Zafar Hayat, 2020. "Does Gold Act as a Hedge or a Safe Haven? Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 69-80.
    • Handle: RePEc:pid:journl:v:59:y:2020:i:1:p:69-80
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    File URL: http://www.pide.org.pk/pdf/PDR/2020/Volume1/69-80.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Rui Manuel Dias & Mariana Chambino & Nuno Teixeira & Paulo Alexandre & Paula Heliodoro, 2023. "Balancing Portfolios with Metals: A Safe Haven for Green Energy Investors?," Energies, MDPI, vol. 16(20), pages 1-21, October.
    4. Zulfiqar Ali Imran & Muhammad Ahad, 2022. "Safe-haven investments against stock returns in Pakistan: a role of real estate, gold, oil and US dollar," International Journal of Housing Markets and Analysis, Emerald Group Publishing Limited, vol. 16(1), pages 167-189, February.
    5. Shabir Mohsin Hashmi & Bisharat Hussain Chang, 2023. "Asymmetric effect of macroeconomic variables on the emerging stock indices: A quantile ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 1006-1024, January.
    6. Xiaohui GONG & Bisharat Hussain CHANG & Xi CHEN & Kaiyang ZHONG, 2023. "Asymmetric Effects of Exchange Rates on Energy Demand in E7 Countries: New Evidence from Multiple Thresholds Nonlinear ARDL Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 125-142, June.
    7. Hashmi, Shabir Mohsin & Chang, Bisharat Hussain & Huang, Liangfang & Uche, Emmanuel, 2022. "Revisiting the relationship between oil prices, exchange rate, and stock prices: An application of quantile ARDL model," Resources Policy, Elsevier, vol. 75(C).
    8. Hashmi, Shabir Mohsin & Chang, Bisharat Hussain & Rong, Li, 2021. "Asymmetric effect of COVID-19 pandemic on E7 stock indices: Evidence from quantile-on-quantile regression approach," Research in International Business and Finance, Elsevier, vol. 58(C).
    9. Imran, Zulfiqar Ali & Ahad, Muhammad, 2021. "Safe Haven or Hedge: Diversification Abilities of Asset Classes in Pakistan," MPRA Paper 107613, University Library of Munich, Germany, revised 02 May 2021.
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    More about this item

    Keywords

    Gold Returns; Safe Haven; Hedge; DCC GARCH;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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