The Role of Gold as a Hedge and Safe Haven in Shariah-Compliant Portfolios

Ruslan Nagayev and Abul Masih

MPRA Paper from University Library of Munich, Germany

Abstract: The paper is the first attempt to evaluate the role of gold as a hedge (negative or low correlation with equities in normal market conditions) and safe haven (negative or low correlation in times of market turbulence) by using the daily data for gold and Shariah-compliant equities ranging from January 1996 to April 2013, and comparing between developed and emerging markets in time-frequency domain. Wavelet Coherence technique is applied to identify the best time-frequency for gold as a hedge, and MGARCH-DCC to find out the reaction of gold to unfavorable market conditions as a safe haven. The results tend to indicate that gold maintains its capacity as hedging instrument at higher time-scales, while during the financial crisis it demonstrated a weak form of safe haven by showing almost zero correlation with the Shariah-compliant equities.

Keywords: Gold; shariah-compliant equities; wavelet coherence; MGARCH-DCC (search for similar items in EconPapers)
JEL-codes: C22 C58 G11 (search for similar items in EconPapers)
Date: 2013-08-26
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Citations: View citations in EconPapers (5)

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