Safe haven, hedge and diversification for G7 stock markets: Gold versus bitcoin

• Published in: Economic modelling Vol. 87; pp. 212 - 224
• Main Authors: Hussain Shahzad, Syed Jawad, Bouri, Elie, Roubaud, David, Kristoufek, Ladislav
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-05-2020
• Subjects: Bitcoin; Conditional diversification benefits; G7 stock indices; Gold; Hedging; Safe haven; Gold; C52; G11; Bitcoin; Conditional diversification benefits; Hedging; G17; Safe haven; G7 stock indices
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2019.07.023

We compare gold and Bitcoin for the G7 stock markets, finding that gold and Bitcoin have distinct safe haven and hedging characteristics. Gold is an undisputable safe haven and hedge for several G7 stock indices, whereas Bitcoin takes these two functions in Canada. The out-of-sample hedging effectiveness of gold is much superior to that of Bitcoin. Furthermore, we find that the conditional diversification benefits offered by gold to equity investments in the G7 markets are comparatively much higher and more stable than those of Bitcoin, especially in the lower return quantiles, i.e., when both the stock and gold markets are in a bearish state. Implications are further discussed.
•We compare gold and Bitcoin for the G7 stock markets.•Gold is an undisputable safe haven and hedge for several G7 stock indices.•Bitcoin takes these two functions in Canada.•The out-of-sample hedging effectiveness of gold is comparatively better.•The diversification benefits offered by gold are comparatively higher.