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Is Gold a Safe Haven for the Market Portfolio
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Journal | International Review of Financial Analysis |
---|---|
Date | Accepted/In press - 23 Aug 2018 |
Date | E-pub ahead of print - 20 Sep 2018 |
Date | Published (current) - Nov 2018 |
Volume | 60 |
Number of pages | 8 |
Pages (from-to) | 30-37 |
Early online date | 20/09/18 |
Original language | English |
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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