tailieunhanh - Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold

A third empirical issue which has been raised is the correlation between stock return volatility and stock expected returns. Merton (1980) postulated that expected stock market return should be positively related with the variance of market return (and proportional to it). However, the empirical evidence is not conclusive. French, Schwert and Stambaugh (1987) and Campbell and Hentschel (1992) nd this correlation to be positive, while Turner, Starz and Nelson (1989), Glosten, Jangannathan and Runkle (1993) and Nelson (1991) nd this correlation to be negative. Often the coe¢ cient linking stock return volatility and stock expected returns is statistically insigni cant | Institute for International Integration Studies IIIS Discussion Paper December 2006 Is Gold a Hedge or a Safe Haven An Analysis of Stocks Bonds and Gold Dirk Baur IIIS Trinity College Dublin Brian Lucey School of Business Studies IIIS Trinity College Dublin IIIS Discussion Paper No. 198 Is Gold a Hedge or a Safe Haven An Analysis of Stocks Bonds and Gold Dirk G. Baur Brian M. Lucey Disclaimer Any opinions expressed here are those of the author s and not those of the IIIS. All works posted here are owned and copyrighted by the author s . Papers may only be downloaded for personal use only. Is Gold a Hedge or a Safe Haven An Analysis of Stocks Bonds and Gold Dirk G. Baur Institute for International Integration Studies Trinity College Dublin Brian M. Lucey School of Business Studies Trinity College Dublin December 2006 Abstract This paper addresses two questions. First we investigate whether gold is a hedge against stocks and or bonds and second we investigate whether gold is a safe haven for investors if either stocks or bonds fall. A safe haven is defined as a security that loses none of its value in case of a market crash. This is counterpoised against a hedge defined as a security that does not co-move with stocks or bonds on average. We study constant and time-varying relationships between stocks bonds and gold in order to investigate the existence of a hedge and a safe haven. The empirical analysis examines US UK and German stock and bond prices and returns and their relationship with the Gold price. We find that i Gold is a hedge against stocks ii Gold is a safe haven in extreme stock market conditions and iii Gold is a safe haven for stocks only for 15 trading days after an extreme shock occurred. JEL G10 G11 G14 G15 Keywords Safe haven gold stock-bond correlation flight-to-quality Corresponding author. Address IIIS The Sutherland Centre College Green Dublin 2 Ireland. Email baurd@. The authors thank Niels Schulze for helpful comments on an .