Regime-Dependent Volatility Dynamics: Evidence from Time-Series Analysis

This paper examines the volatility hedging role of precious metals against U.S. stock market risk from a regime-based perspective. While a large literature documents the safe-haven properties of precious metals—particularly gold—based on price or return behavior during periods of market stress, far less is known about their effectiveness in hedging market volatility itself. This distinction is crucial, as price-level diversification does not necessarily imply a reduction in market uncertainty. Using volatility measures constructed from daily price data, the study investigates the relationship between precious metals volatility and stock market volatility across different market regimes defined by the periods before, during, and after the global financial crisis. The empirical results reveal pronounced regime dependence and asset heterogeneity in volatility hedging effectiveness. Gold, despite exhibiting price-level divergence from equity markets consistent with a safe-haven role, tends to co-move with stock market volatility across most regimes, indicating that its widely documented hedging properties do not extend to volatility risk. In contrast, other precious metals display more heterogeneous and regime-dependent volatility relationships, with limited evidence of volatility hedging emerging only under specific market conditions. Overall, the findings help reconcile conflicting evidence in the literature by highlighting the conceptual difference between price-based safe-haven behavior and volatility-based hedging, and they underscore the importance of explicitly accounting for market regimes when evaluating the risk management role of precious metals.