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Is gold a Sometime Safe Haven or an Always Hedge for Equity Investors? A Markov-Switching CAPM Approach for US and UK Stock Indices

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Publication details

JournalInternational Review of Financial Analysis
DateAccepted/In press - 23 Aug 2018
DateE-pub ahead of print - 20 Sep 2018
DatePublished (current) - Nov 2018
Number of pages8
Pages (from-to)30-37
Early online date20/09/18
Original languageEnglish


This paper re-examines gold's role as a tool for investors to manage their portfolio risk. We begin by assessing gold's average relationship to an investor's diversified equity portfolio by applying the basic Capital Asset Pricing Model (CAPM) to UK and US equity indices. Next, we apply a Markov-switching CAPM to assess whether two distinct states exist between gold's relationship with the Market Portfolio. This approach allows the data to determine if two separate states exist and, if so, whether one state matches the definition of a Safe Haven from the literature. Using this new approach, we find that gold is consistently a Hedge, but that no distinct Safe Haven state exists between gold and UK or US stock markets.

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© 2018 Elsevier Inc. All rights reserved. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy.

    Research areas

  • Beta, CAPM, FTSE100, Gold, Hedge, Markov-switching model, S&P500, Safe Haven, Stock markets, UK, US

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