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Stock market returns and the price of gold

Author

Listed:
  • Deren Caliskan
  • Mohammad Najand

    (Strome College of Business, Old Dominion University)

Abstract

Contrarian investors attempt to buy low and sell high in stock markets. They may demand gold to secure their gains when they sell their winning portfolios, as they need marketable securities. On the other hand, when investors find an opportunity to buy stocks at lower prices, they may demand less gold because they need capital to buy losing portfolios. Unlike the traditional view, this study predicts the price of gold to increase (decrease) subsequent to significant positive (negative) stock returns. We provide some evidence to support this hypothesis, against the traditional view, arguing that investors may demand more or less gold to take advantage of market fluctuations.

Suggested Citation

  • Deren Caliskan & Mohammad Najand, 2016. "Stock market returns and the price of gold," Journal of Asset Management, Palgrave Macmillan, vol. 17(1), pages 10-21, January.
    • Handle: RePEc:pal:assmgt:v:17:y:2016:i:1:d:10.1057_jam.2015.37
    DOI: 10.1057/jam.2015.37
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    References listed on IDEAS

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    Cited by:

    1. Aktham Maghyereh & Basel Awartani & Abul Hassan, 2018. "Can gold be used as a hedge against the risks of Sharia-compliant securities? Application for Islamic portfolio management," Journal of Asset Management, Palgrave Macmillan, vol. 19(6), pages 394-412, October.
    2. Huck, Nicolas, 2019. "Large data sets and machine learning: Applications to statistical arbitrage," European Journal of Operational Research, Elsevier, vol. 278(1), pages 330-342.
    3. Yun Shi & Lin Yang & Mei Huang & Jun Steed Huang, 2021. "Multi-Factorized Semi-Covariance of Stock Markets and Gold Price," JRFM, MDPI, vol. 14(4), pages 1-11, April.
    4. 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.
    5. Depren, Özer & Kartal, Mustafa Tevfik & Kılıç Depren, Serpil, 2021. "Changes of gold prices in COVID-19 pandemic: Daily evidence from Turkey's monetary policy measures with selected determinants," Technological Forecasting and Social Change, Elsevier, vol. 170(C).
    6. Lazzarino, Marco & Berrill, Jenny & Šević, Aleksandar, 2022. "The importance of distinguishing between precious and industrial metals when investing in mining stocks," Resources Policy, Elsevier, vol. 78(C).

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