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Hedging Market Volatility with Gold

Quantitative Finance and Economics, Vol. 1, No. 3, pp. 253-271, 2017

27 Pages Posted: 3 Nov 2011 Last revised: 31 Oct 2017

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business

John Levendis

Loyola University New Orleans

Date Written: September 16, 2017

Abstract

The 2008 financial crisis refocused investors’ attention to several safe-haven assets, most notably gold and US Treasuries. We compare the role of these two assets as potential hedge instruments for thirteen major indexes’ returns and their volatilities. Our study extends the literature by using gold returns purged from the effects of being denominated in US dollars. We also utilize seventeen different volatility indexes to include US and international equities as well as currencies instead of the common S&P-500 index. While gold and Treasuries are comparable in their correlation with contemporaneous market returns, Treasuries seem to be safe haven asset of choice. Gold is more correlated than Treasuries in terms of lead-lag relationships with market returns as well as market volatility indexes.

Keywords: Gold, US Treasuries, safety asset, safe haven, volatility

JEL Classification: G10, G11, G15

Suggested Citation

Dicle, Mehmet F. and Levendis, John, Hedging Market Volatility with Gold (September 16, 2017). Quantitative Finance and Economics, Vol. 1, No. 3, pp. 253-271, 2017. Available at SSRN: https://ssrn.com/abstract=1953425 or http://dx.doi.org/10.2139/ssrn.1953425

Mehmet Dicle (Contact Author)

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business ( email )

6363 St. Charles Avenue
New Orleans, LA 70118
United States

HOME PAGE: http://researchforprofit.com

John Levendis

Loyola University New Orleans ( email )

6363 St. Charles Ave., box 15
New Orleans, LA 70118
United States

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