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The timing of the flight to gold: An intra-day analysis of gold and the S&P500

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  • Baur, Dirk G.
  • Kuck, Konstantin

Abstract

We use high-frequency intra-day gold and S&P500 data covering the period from 2007 to 2018 to investigate when and how fast gold prices react to extreme negative shocks in the equity market. Our empirical analysis reveals three new features of gold: First, extreme negative 5-min S&P500 returns lead to a positive reaction of the gold price. Second, on days with extreme price declines in the stock market, gold continues to increase post US stock trading hours. Third, daily extreme negative equity returns accrue comparatively slowly over several hours. The findings show that there is a fast reaction of gold prices to extreme negative stock returns consistent with a flight to gold.

Suggested Citation

  • Baur, Dirk G. & Kuck, Konstantin, 2020. "The timing of the flight to gold: An intra-day analysis of gold and the S&P500," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612319301448
    DOI: 10.1016/j.frl.2019.05.005
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    References listed on IDEAS

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    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Gary Gorton, 2017. "The History and Economics of Safe Assets," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 547-586, September.
    3. Angelo Ranaldo & Paul Söderlind, 2010. "Safe Haven Currencies," Review of Finance, European Finance Association, vol. 14(3), pages 385-407.
    4. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
    5. Jonathan Batten & Brian Lucey & Frank McGroarty & Maurice Peat & Andrew Urquhart, 2017. "Stylized facts of intraday precious metals," PLOS ONE, Public Library of Science, vol. 12(4), pages 1-21, April.
    6. Claude B. Erb & Campbell R. Harvey, 2013. "The Golden Dilemma," NBER Working Papers 18706, National Bureau of Economic Research, Inc.
    7. Baur, Dirk G. & McDermott, Thomas K.J., 2016. "Why is gold a safe haven?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 10(C), pages 63-71.
    8. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
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    Cited by:

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    3. Guglielmo Maria Caporale & Alex Plastun, 2021. "Gold and oil prices: abnormal returns, momentum and contrarian effects," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(3), pages 353-368, September.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F30 - International Economics - - International Finance - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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