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Dynamic correlations and hedging effectiveness between gold and stock markets: Evidence for BRICS countries
Affiliation:1. Faculty of Agribusiness and Commerce, Lincoln University, , New Zealand & IPAG Business School, Paris, France;2. Department of Economics and Finance, La Trobe University (LTU), Melbourne, Australia;3. CBA, King Abdulaziz University (KAU), Jeddah, Saudi Arabia;4. Faculty of Civil Engineering, Slovak University of Technology, Bratislava, Slovakia;5. Faculty of Management, Comenius University, Bratislava, Slovakia;1. Montpellier Business School, Montpellier, France;2. Montpellier Research in Management, Montpellier, France;3. Economics Program, School of Social Sciences, Universiti Sains Malaysia, Malaysia;4. Department of Economics, Hong Kong Baptist University, Hong Kong;1. University of Duisburg-Essen, Department of Economics, Chair for Macroeconomics, D-45117 Essen, Germany;2. Kiel Institute for the World Economy, Hindenburgufer 66, D-24105 Kiel, Germany;3. University of Bremen, Department of Business Administration, Chair for Applied Statistics and Empirical Economics, D-28359 Bremen, Germany;4. University of Duisburg-Essen, Department of Economics, Chair for Econometrics, D-45117 Essen, Germany;5. FOM Hochschule für Oekonomie & Management, University of Applied Sciences, Herkulesstr. 32, D-45127 Essen, Germany
Abstract:
This paper examines the dynamic relationships between gold and stock markets using data for the BRICS counties. For this purpose, we estimate the Asymmetric DCC model for weekly stock and gold data. Our main objective is to examine the time-varying correlations between the two assets and to check the effectiveness of gold as a hedge for equity markets. The empirical results reveal that the dynamic conditional correlations switch between positive and negative values over the period under study. These correlations are low to negative during the major financial crises suggesting that gold can act as a safe haven against extreme market movements. We also evaluate the implications for portfolio diversification and hedging effectiveness for the gold/stock pairs. Our findings suggest that adding gold to a stock portfolio enhances its risk-adjusted return.
Keywords:Gold  Stock markets  Hedge  Multivariate A-DCC model
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