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Gold as a Hedge and a Diversifier: The Perspective from Lebanon

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  • Samih Antoine Azar

Abstract

The purpose of this paper is to find out whether gold, valued in Lebanese terms, is a hedge against losses in purchasing power, and whether it is a portfolio diversifier. Gold is found to be a partial hedge to consumer price inflation, a weak hedge to the depreciation of the domestic currency, and a modest hedge to commodity price changes, like oil prices. Although in a multiple regression context gold seems to be unrelated to US stock prices, converted to Lebanese pounds, the bivariate correlation is positive and high. The diversification properties of gold, when it is added to (1) oil, to (2) the DJIA, to (3) the Euro, to (4) a deposit in Lebanese pounds, or to (5) oil, the DJIA, the Euro and a deposit in Lebanese pounds, all together, are studied. It is found that the diversification benefits are rather substantial. The implied price of risk is commensurate with the one in the US financial market. Finally, gold volatility is asymmetrically affected by positive and negative shocks in gold prices, similar to the evidence elsewhere. But unlike the evidence elsewhere the volatility of gold responds strictly to positive shocks but not to negative shocks.

Suggested Citation

  • Samih Antoine Azar, 2016. "Gold as a Hedge and a Diversifier: The Perspective from Lebanon," Accounting and Finance Research, Sciedu Press, vol. 5(1), pages 1-27, February.
    • Handle: RePEc:jfr:afr111:v:5:y:2016:i:1:p:27
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    References listed on IDEAS

    as
    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. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-370, March.
    3. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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