In Gold We Trust: Should German Investors Consider Gold in Stock Portfolios?

Siegfried Köstlmeier and Klaus Röder

Chapter 19 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 417-436 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Gold has similar expected returns and risk properties as stocks. The Sharpe ratio maximising allocation of gold in addition to diversified German stock portfolios varies between 42% and 75%. When tilting away from the market portfolio among firm-characteristics, hedge-based considerations suggest to increase the gold ratio when the underlying stock portfolio is riskier. As the correlation between monthly returns of both asset classes is close to zero in Germany, we find that investors can maximize the Sharpe ratio by decreasing the gold weight in more riskier portfolios and vice versa.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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