The hedging effectiveness of gold against US stocks in a post-financial crisis era

The hedging effectiveness of gold against US stocks in a post-financial crisis era

Purpose-The purpose of this paper is to examine the transmission mechanisms and dynamic spillover effects between gold spot prices and US equity prices following the 2007 Global Financial Crisis. It also aims at estimating hedging effectiveness between stocks and gold in major US financial market. D...

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Bibliographic Details
Published in:Cogent economics & finance Vol. 7; no. 1; pp. 1 - 23
Main Authors: Shrydeh, Najib, Shahateet, Mohammed Issa, Mohammad, Suleiman, Sumadi, Mohammed
Format: Journal Article
Language:English
Published: Abingdon Taylor & Francis 01-01-2019
Cogent
Taylor & Francis Ltd
Taylor & Francis Group
Subjects:
ADCC
BVGARCH
Economic crisis
Financial market
gold market
Gold markets
Hedging
International finance
Policy making
Prices
Securities markets
Spillover effect
Stock exchanges
US equity market
VAR
volatility spillover and transmission
United States > US
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Summary:Purpose-The purpose of this paper is to examine the transmission mechanisms and dynamic spillover effects between gold spot prices and US equity prices following the 2007 Global Financial Crisis. It also aims at estimating hedging effectiveness between stocks and gold in major US financial market. Design/methodology/approach-There is large agreement in the literature that gold exhibits the main requirements to qualify as a risk-mitigating instrument against changes in stock prices and other market variables. To test the validity of this conception, this study applies a VAR-ADCC-BVGARCH model for 2,870 daily observations of US financial market during 2007-2017. Findings-The results suggest that the hedging effectiveness of gold against US stocks tends to diminish as stock market capitalization increases, implying that a marginal level of risk exposure is mitigated considering the relatively high proportion of funds that need to be invested in gold against stocks. Originality/value-The real economy is heavily influenced by financial markets, the implications of which are imperative for investors, policy makers and portfolio managers. The key findings of this study are critical in formulating optimal hedging strategies.
ISSN:2332-2039
2332-2039
DOI:10.1080/23322039.2019.1698268