Gold against Asian Stock Markets during the COVID-19 Outbreak

Imran Yousaf,Shoaib Ali,Elie Bouri,Nehme Azoury

doi:10.3390/jrfm14040186

Abstract

This study examines the safe-haven and hedging roles of gold against thirteen Asian stock markets during the COVID-19 outbreak. During the COVID-19 sub-period, gold is shown to be a strong hedge (diversifier) for the majority (minority) of Asian stock markets; it exhibits the property of a strong safe-haven in China, Indonesia, Singapore, and Vietnam, and a weak safe-haven in Pakistan and Thailand. The optimal weights of all stock-gold portfolios are lower during the COVID-19 sub-period than the pre COVID-19 sub-period, suggesting that portfolio investors should increase their investment in gold during the COVID-19 sub-period. The hedging effectiveness for most Asian stock markets is higher during the COVID-19 sub-period. Further analyses show that the hedge portfolio returns in many cases are mostly driven by gold implied volatility and inflation expectations in both sub-periods. Our findings have useful implications for market participants holding investments in Asian stocks during stressful periods.

Highlights

Gold, as an investment asset, attracts considerable attention in the financial community due to its ability for hedge inflation and to produce an appealing risk adjusted return (Gorton and Rouwenhorst 2006)
The results show that γ1 is negative and significant for China, Indonesia, Singapore, and Vietnam, indicating that gold is a strong safe-haven against price movements in these four Asian stock market indices during the COVID-19 outbreak
The optimal weights of all stock-gold portfolios are higher during the pre COVID-19 sub-period than the COVID-19 sub-period, suggesting that portfolio investors should increase their investment in gold during the COVID-19 sub-period to reduce the downside risk of equity investments

Summary

Introduction

As an investment asset, attracts considerable attention in the financial community due to its ability for hedge inflation and to produce an appealing risk adjusted return (Gorton and Rouwenhorst 2006). 2014; Beckmann et al 2015; Arouri et al 2015; Chkili 2016; Klein 2017; Klein et al 2018; Bekiros et al 2017; Chen and Wang 2019; Ali et al 2020; Shahzad et al 2020; Ming et al.2020) It extensively considers the role of gold during various financial crises and adverse market conditions, and mostly applies methods based on conditional correlations and portfolio analyses (e.g., Basher and Sadorsky 2016). This is the case around crisis episodes such as the Asian crisis of 1997, the global financial crisis (GFC) of 2007–2008, and the European sovereign debt crisis (ESDC) of 2010–2013, during which stock market indices declined and stock market volatility (risk) spiked

Methods

Results

Conclusion