The Relationships Among Stocks, Bonds and Gold: Safe Haven, Hedge or Neither?

Shu-Mei Chiang, Chi-Tai Lin and Chien-Ming Huang
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Shu-Mei Chiang: Lunghwa University of Science and Technology, Taiwan
Chi-Tai Lin: Industrial Technology Research Institute, Taiwan
Chien-Ming Huang: Tamkang University, Taiwan

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Abstract: This paper applies a multivariate GARCH model to analyze the interdependence among gold, stocks and bonds price. Besides, we also examine the relationship between gold and oil price to see if gold could store value during financial crisis term. The empirical results show that gold is a feedback hedge for stocks for the full sample period. Hence, gold is a good diversification instrument for stock investment. About the correlation between gold and oil price, this paper finds that gold possesses store-value function. During the financial crisis period, gold is a safe haven for bonds only when the innovations flow from gold to bond market. On the relationship between oil price and gold, it is found that gold is no longer a fine product to resist inflation. Although the direction and duration are not identical, the impulse responses among gold, stock and bond markets are short-lived. Briefly, there exists some kind of relatedness between gold and stocks and gold and bonds. Generally, gold is a suitable tool to hedge against the stock market; whilst during financial crisis span, gold is not a safe haven for stocks.

Keywords: Gold; Stock; Bond; Multivariate GARCH model (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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