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Does Gold Act as a Hedge and a Safe Haven for China’s Stock Market?

Ke Chen () and Meng Wang ()
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Ke Chen: School of Finance and Statistics, Hunan University, Changsha, Hunan 410079, China
Meng Wang: School of Finance and Statistics, Hunan University, Changsha, Hunan 410079, China

International Journal of Financial Studies, 2017, vol. 5, issue 3, 1-18

Abstract: This paper examines the dynamic relationships between gold and stock markets in China. Using daily gold and stock indexes data, we estimated the DCC-GARCH model for the five bear markets since 31 October 2002, and simultaneously used different segments of China’s stock markets for analysis. Our main objective was to examine the time-varying correlations between gold and stock and to check the effectiveness of gold as a hedge or a safe haven for stocks. Results showed that: (1) the dynamic conditional correlations switched between positive and negative values over the periods under study; (2) due to the increasing investment demand of gold, the hedging effect of gold on China’s stock market has strengthened remarkably. Gold acts as a safe haven for only the latest two of the five bear markets analyzed (12 June 2015–26 August 2015 and 22 December 2015–29 February 2016); and (3) for non-bear markets, gold does not offer good risk hedging.

Keywords: gold; bear markets; correlation; safe haven; hedge (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 F2 F3 F41 F42 (search for similar items in EconPapers)
Date: 2017
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