Is gold the best hedge and a safe haven under changing stock market volatility?. Issue 2 (14th March 2013)

• Record Type: Journal Article
• Authors: Hood, Matthew; Malik, Farooq
• Is Part Of: Review of financial economics. Volume 22:Issue 2(2013)
• Page Start: 47
• Page End: 52
• Publication Date: 2013-03-14
• Subjects: G1; Hedging -- GARCH -- Volatility -- Gold -- Safe haven -- Volatility shifts; Business -- Periodicals; Economics -- Periodicals; Business; Economics; Electronic journals; Periodicals; 332.05
• DOI: 10.1016/j.rfe.2013.03.001
• Languages: English
• ISSNs: 1058-3300

Abstract

Abstract: We evaluate the role of gold and other precious metals relative to volatility (Volatility Index (VIX)) as a hedge (negatively correlated with stocks) and safe haven (negatively correlated with stocks in extreme stock market declines) using data from the US stock market. Using daily data from November 1995 to November 2010, we find that gold, unlike other precious metals, serves as a hedge and a weak safe haven for US stock market. However, we find that VIX serves as a very strong hedge and a strong safe haven during our sample period. We also find that in periods of extremely low or high volatility, gold does not have a negative correlation with the US stock market. Our results show that VIX is a superior hedging tool and serves as a better safe haven than gold during our sample period. We highlight the practical significance of our results for financial market participants by conducting a portfolio analysis.