The Role Of Gold As A Diversifier, Hedge And Safe Haven: A Study On The Impact Of Stock Market And Inflation In Malaysia
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Date
2016-05
Authors
Ghazali, Mohd Fahmi
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Abstract
Despite the universal agreement of gold as a safe haven asset, empirical research on this issue to date is relatively sparse, particularly in the context of Malaysia. Therefore, this study primarily aims to analyse the characteristics of gold, whether it acts as a diversifier, a hedge or a safe haven against stock; and as a hedge or a safe haven against inflation; during various economic climates. Based on the constant relations, this study demonstrates that gold, generally, displays little evidence of the strong hedge property against the stock market in the full sample (2001-2014). Nevertheless, this study documents some strong hedging role for local gold in the shorter sample (2010-2014), the period when special attention is given to the European debt crisis. International gold, on the other hand, performs poorly as a hedge during the same period (2010-2014). In terms of the safe haven feature, the quantile relations show that local gold, at best, tends to be a weak safe haven against the stock market in both periods. However, international gold, in particular gold denominated in the UK pound, can act as a strong safe haven during extreme movements in stock return. The strength of the safe haven characteristic varies across market conditions and return frequencies. Concerning gold-inflation relationships, this study reveals that gold, at best, is a less viable hedging and safe haven instruments against inflation. This study
also finds that different currency denominations, different frequencies of shock and different types of gold are important in determining the hedge and safe haven effects while gold in various weights only play a minor role. In conclusion, these results demonstrate that gold plays only a minor role during stock market slumps and inflationary episodes in Malaysia. Therefore, holding a well-diversified portfolio could potentially provide reasonable return and protection from economic collapse.
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To analyse the characteristics of gold, whether it acts as a diversifier , a hedge or a safe haven against stock