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Is gold a hedge or safe haven for Islamic stock market movements? A Markov switching approach

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  • Chkili, Walid

Abstract

This paper uses the Markov switching approach to investigate the role of gold as a hedge or safe haven for Islamic stock market risk. Empirical results reveal on the one hand, the presence of two distinct regimes for all the considered markets, namely a low volatility regime and a high volatility regime. More precisely, the high volatility regime coincides with the major economic and political events that occurred during the period under study. On the other hand, evidence shows that gold can act as a weak hedge and a strong safe haven against extreme Islamic stock market movements. This result has significant implications for portfolio diversification and hedging strategy choice.

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  • Chkili, Walid, 2017. "Is gold a hedge or safe haven for Islamic stock market movements? A Markov switching approach," Journal of Multinational Financial Management, Elsevier, vol. 42, pages 152-163.
    • Handle: RePEc:eee:mulfin:v:42-43:y:2017:i::p:152-163
    DOI: 10.1016/j.mulfin.2017.10.001
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    13. Khan, Muhammad Asif & Khan, Farhad & Sharif, Arshian & Suleman, Muhammad Tahir, 2023. "Dynamic linkages between Islamic equity indices, oil prices, gold prices, and news-based uncertainty: New insights from partial and multiple wavelet coherence," Resources Policy, Elsevier, vol. 80(C).
    14. Ariannejad , Aghil & Tehrani , Reza, 2021. "Study on Gold as a Hedge or Safe Haven for the Stock Market by a Markov Switching Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(3), pages 377-398, September.
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    21. Lee, Chien-Chiang & Lee, Hsiang-Tai, 2023. "Optimal portfolio diversification with a multi-chain regime-switching spillover GARCH model," Global Finance Journal, Elsevier, vol. 55(C).
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    More about this item

    Keywords

    Islamic stock market; Gold; Markov switching; Hedge; Safe haven;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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