Study on Gold as a Hedge or Safe Haven for the Stock Market by a Markov Switching Approach

Aghil Ariannejad () and Reza Tehrani ()
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Aghil Ariannejad : Department of Financial Management, Kish International Campus, University of Tehran
Reza Tehrani : Department of Finance and Insurance, Faculty of Management, University of Tehran

Journal of Money and Economy, 2021, vol. 16, issue 3, 377-398

Abstract: Although gold is no longer a central cornerstone of the international monetary and financial system, it still attracts considerable attention from researchers and investors. Nowadays, many investors manage their risk with valuable assets such as gold. This paper examines the dynamic relationships between gold and stock markets in the Tehran Stock Exchange. We have applied the Markov switching method to study the role of gold as a hedge or safe haven for the Tehran Stock Exchange risk from 1998 to 2018. The high dependence and low dependence regimes used in the Markov switching model are based on empirical results that show two regimes for all markets under investigation: a low volatility regime and a high volatility regime. The study's findings show that gold can act as a strong hedge and cannot act as a safe haven for risk of The Tehran stock exchange.

Keywords: Tehran Stock Exchange; Gold; Markov switching; Hedge; Safe haven (search for similar items in EconPapers)
JEL-codes: C24 G01 G10 G11 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mbr:jmonec:v:16:y:2021:i:3:p:377-398

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