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Dynamic correlations and hedging effectiveness between gold and stock markets: Evidence for BRICS countries

Walid Chkili

Research in International Business and Finance, 2016, vol. 38, issue C, 22-34

Abstract: This paper examines the dynamic relationships between gold and stock markets using data for the BRICS counties. For this purpose, we estimate the Asymmetric DCC model for weekly stock and gold data. Our main objective is to examine the time-varying correlations between the two assets and to check the effectiveness of gold as a hedge for equity markets. The empirical results reveal that the dynamic conditional correlations switch between positive and negative values over the period under study. These correlations are low to negative during the major financial crises suggesting that gold can act as a safe haven against extreme market movements. We also evaluate the implications for portfolio diversification and hedging effectiveness for the gold/stock pairs. Our findings suggest that adding gold to a stock portfolio enhances its risk-adjusted return.

Keywords: Gold; Stock markets; Hedge; Multivariate A-DCC model (search for similar items in EconPapers)
JEL-codes: C32 G10 G11 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.ribaf.2016.03.005

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