Is Gold a Hedge or Safe Haven Asset during COVID–19 Crisis?

45 Pages Posted: 8 Jun 2020

See all articles by Md Akhtaruzzaman

Md Akhtaruzzaman

Australian Catholic University

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion

Brian M. Lucey

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

Ahmet Sensoy

Borsa Istanbul

Date Written: May 15, 2020

Abstract

The COVID–19 pandemic has shaken the global financial markets. Our study examines the role of gold as a safe haven asset during the different phases of this COVID–19 crisis by utilizing an intraday dataset. The empirical findings show that dynamic conditional correlations (DCCs) between intraday gold and international equity returns (S&P500, Euro Stoxx 50, Nikkei 225, and China FTSE A50 indices) are negative during Phase I (December 31, 2019−March 16, 2020) of the COVID–19 pandemic, indicating that gold is a safe haven asset for these stock markets. However, gold has lost its property as a safe haven asset for these markets during Phase II (March 17−April 24, 2020). The optimal weights of gold in the portfolios of S&P500, Euro Stoxx 50, Nikkei 225 and WTI crude oil has significantly increased during Phase II, suggesting that investors have increased the optimal weights of gold as ‘flight-to-safety assets’ during the crisis period. The results also show that hedging costs have significantly increased during Phase II. The hedging effectiveness (HE) index shows that the hedge is effective for portfolios containing gold and major financial assets. Our results are robust to alternative specifications of the DCC-GARCH model.

Keywords: COVID–19; gold; safe haven; hedge ratio; hedging effectiveness; The CARES Act; spillover index

JEL Classification: G15; G20; G21; G22; G23

Suggested Citation

Akhtaruzzaman, Md and Boubaker, Sabri and Lucey, Brian M. and Sensoy, Ahmet, Is Gold a Hedge or Safe Haven Asset during COVID–19 Crisis? (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3621358 or http://dx.doi.org/10.2139/ssrn.3621358

Md Akhtaruzzaman (Contact Author)

Australian Catholic University ( email )

Level 20, Tenison Woods House, 8-20 Napier St
North Sidney, NSW 2060
Australia

Sabri Boubaker

University Paris-Est Créteil (UPEC) - Institut de Recherche en Gestion ( email )

61 Avenue du General de Gaulle
94010 Creteil
France

HOME PAGE: http://www.irg.u-pec.fr/enseignant.php?num=58

Brian M. Lucey

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

Ho Chi Minh City University of Economics and Finance ( email )

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

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China

Ahmet Sensoy

Borsa Istanbul ( email )

Reşitpaşa mh.
Tuncay Artun cd.
Istanbul, 34467
Turkey

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