Open AccessDOES GOLD INVESTMENT OFFER PROTECTION AGAINST STOCK MARKET LOSSES? EVIDENCE FROM FIVE COUNTRIES
Author(s) -
Mohd Fahmi Ghazali,
Hooi Hooi Lean,
Zakaria Bahari
Publication year - 2019
Publication title -
singapore economic review/the singapore economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.275
H-Index - 17
eISSN - 1793-6837
pISSN - 0217-5908
DOI - 10.1142/s021759081950036x
Subject(s) - safe haven , gold as an investment , hedge , economics , stock (firearms) , financial economics , stock market , portfolio , volatility (finance) , china , emerging markets , monetary economics , business , finance , mechanical engineering , ecology , paleontology , horse , political science , law , engineering , biology
This study aims to analyze the characteristics of gold as a diversifier, a hedge or a safe haven against the stock market collapse in five countries. We propose the standard and quantile techniques in the volatility models, with the time-varying conditional variance of the regression residuals based on the TGARCH specifications. Gold exhibits considerable evidence of the strong hedge in India and the US and diversified role in China. With regards to its role as a safe haven, gold retains its status as a key investment particularly in a country where gold has a preeminent cultural role, i.e., India, as well as in the US and the UK. On the contrary, gold only plays a minor role in emerging markets like in Malaysia. Therefore, investors in India and the US can use gold to protect against losses in the stock market at all times, whereas in the UK, gold is only viewed as a profitable asset to own during the stock market collapse. Contrariwise, Chinese investors should hold a well-diversified portfolio to earn sustainable returns and offer protection against the stock market collapse. We conclude that the recent worldwide financial crises have increased the investment demand for gold over the last 17 years at least.