Dependence of Stock Markets with Gold and Bonds under Bullish and Bearish Market States
Syed Jawad Hussain Shahzad (),
Muhammad Shahbaz () and
MPRA Paper from University Library of Munich, Germany
This paper examines the dependence of gold and benchmark bonds with ten stock markets including five larger developed markets (e.g. USA, UK, Japan, Canada and Germany) and five Eurozone peripheral GIPSI countries (Greece, Ireland, Portuguese, Spain and Ireland) stock markets. We use a novel quantile-on-quantile (QQ) approach to construct the dependence estimates of the quantiles of gold and bond with the quantiles of stock markets. The QQ approach, recently developed by Sim and Zhou (2015), captures the dependence between the entire distributions of financial assets and uncovers some nuance features of the relationship. The empirical findings primarily show that gold is strong hedge and diversifier for the stock portfolio except when both the markets are under stress. Further, the flight to safety phenomenon is short-lived because national benchmark bonds exhibit a positive dependence with their respective countries stock indices at various quantiles. Unlike the existing literature, the QQ approach suggest that bonds act as safe havens for the stock portfolio but gold does not. Our findings also suggest that dependence between stock-gold and stock-bond pairs is not uniform and this relationship is market state (e.g. bearish, mild bearish, optimistic or bullish) and country specific.
Keywords: Stock; Gold; Quantile-on-Quantile; Diversification (search for similar items in EconPapers)
JEL-codes: C01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk
Date: 2017-04-05, Revised 2017-04-15
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Journal Article: Dependence of stock markets with gold and bonds under bullish and bearish market states (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:78595
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