Does gold a safe haven during the crisis period Explanation by behavioural finance for the GCC and BRIC markets

Abstract

This paper investigates the interaction between the volatilities of gold price, stock markets of the emerging countries (GCC and BRIC) and investors' sentiment (VIX). Accordingly, we first examined the effect of the investors' sentiment shocks on the volatility of gold price and stock markets and analysed the dynamic correlation between them. Second, we evaluated the optimal weights, the optimal hedge and the hedging effectiveness ratios for gold-stock portfolio holdings. The empirical results showed that the shocks of investors' sentiment significantly affect the volatilities of gold and emerging stock markets. Moreover, a sharp fall in the dynamic conditional correlation was observed between gold-VIX and gold-emerging stock market pairs during the period of stress. These results provide the orientation of investors to the gold market for hedging when the fear sentiment and the pessimism dominate the stock markets.