What is the Optimal Weight for Gold in a Portfolio?

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See all articles by Brian M. Lucey

Brian M. Lucey

Trinity Business School, Trinity College Dublin; University of Sydney Business School; University of Economics Ho Chi Minh City

Maurice Peat

The University of Sydney; Financial Research Network (FIRN)

Samuel Vigne

Queen's University Belfast

Date Written: November 28, 2018

Abstract

We show that the statistical properties of gold are negatively correlated with equities and that including Gold in a portfolio will provide diversification benefits. As there is no consensus on the proportion of gold that should be included in a strategic portfolio allocation we propose a visual tool that associates a performance metric with a range of possible asset weighting schemes; a Sharpe ratio response surface. This very surface shows that a target performance metric can be achieved with a large number of different allocations. We further argue that the rebalancing approach based on the surface closest to the benchmark surface under the Hausdorrf distance metric should be selected. Using a data sample between 1990 and 2018, we find that annual rebalancing with a 44 week lookback period achieves the minimum distance from the benchmark surface.

Keywords: Gold , portfolio formation , asset allocation

JEL Classification: C32, F18, F49

Suggested Citation

Lucey, Brian M. and Peat, Maurice and Vigne, Samuel, What is the Optimal Weight for Gold in a Portfolio? (November 28, 2018). Available at SSRN: https://ssrn.com/abstract=

Brian M. Lucey (Contact Author)

Trinity Business School, Trinity College Dublin ( email )

The Sutherland Centre, Level 6, Arts Building
Dublin 2
Ireland
+353 1 608 1552 (Phone)
+353 1 679 9503 (Fax)

University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

University of Economics Ho Chi Minh City ( email )

59C Nguyen D├Čnh Chieu
6th Ward, District 3
Ho Chi Minh City, Ho Chi Minh 70000
Vietnam

Maurice Peat

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Samuel Vigne

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

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