Is gold the best hedge and a safe haven under changing stock market volatility?

Document Type

Article

Source of Publication

Review of Financial Economics

Publication Date

4-1-2013

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. © 2013 Elsevier Inc.

ISSN

1058-3300

Publisher

Wiley

Volume

22

Issue

2

First Page

47

Last Page

52

Disciplines

Business

Keywords

GARCH, Gold, Hedging, Safe haven, Volatility, Volatility shifts

Scopus ID

84875907311

Indexed in Scopus

yes

Open Access

no

Link to Full Text

Share

COinS