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The hedging effectiveness of gold against US stocks in a post-financial crisis era

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  • Najib Shrydeh
  • Mohammed Shahateet
  • Suleiman Mohammad
  • Mohammed Sumadi

Abstract

Purpose—The purpose of this paper is to examine the transmission mechanisms and dynamic spillover effects between gold spot prices and US equity prices following the 2007 Global Financial Crisis. It also aims at estimating hedging effectiveness between stocks and gold in major US financial market. Design/methodology/approach—There is large agreement in the literature that gold exhibits the main requirements to qualify as a risk-mitigating instrument against changes in stock prices and other market variables. To test the validity of this conception, this study applies a VAR-ADCC-BVGARCH model for 2,870 daily observations of US financial market during 2007–2017. Findings—The results suggest that the hedging effectiveness of gold against US stocks tends to diminish as stock market capitalization increases, implying that a marginal level of risk exposure is mitigated considering the relatively high proportion of funds that need to be invested in gold against stocks. Originality/value—The real economy is heavily influenced by financial markets, the implications of which are imperative for investors, policy makers and portfolio managers. The key findings of this study are critical in formulating optimal hedging strategies.

Suggested Citation

  • Najib Shrydeh & Mohammed Shahateet & Suleiman Mohammad & Mohammed Sumadi, 2019. "The hedging effectiveness of gold against US stocks in a post-financial crisis era," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1698268-169, January.
    • Handle: RePEc:taf:oaefxx:v:7:y:2019:i:1:p:1698268
    DOI: 10.1080/23322039.2019.1698268
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    Cited by:

    1. Mensi, Walid & Shafiullah, Muhammad & Vo, Xuan Vinh & Kang, Sang Hoon, 2021. "Volatility spillovers between strategic commodity futures and stock markets and portfolio implications: Evidence from developed and emerging economies," Resources Policy, Elsevier, vol. 71(C).
    2. Zbyněk Revenda & Markéta Arltová, 2022. "Akcie, zlato a inflace - vztahy a souvislosti v posledních 25 letech [Stocks, Gold and Inflation - Relationships and Contexts Over the Last 25 Years]," Politická ekonomie, Prague University of Economics and Business, vol. 2022(3), pages 288-311.
    3. Salisu, Afees A. & Vo, Xuan Vinh & Lucey, Brian, 2021. "Gold and US sectoral stocks during COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 57(C).
    4. Darko Vukovic & Moinak Maiti & Zoran Grubisic & Elena M. Grigorieva & Michael Frömmel, 2021. "COVID-19 Pandemic: Is the Crypto Market a Safe Haven? The Impact of the First Wave," Sustainability, MDPI, vol. 13(15), pages 1-17, July.
    5. O'Donnell, Niall & Shannon, Darren & Sheehan, Barry, 2023. "A vaccine for volatility? An empirical analysis of global stock markets and the impact of the COVID-19 vaccine," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    6. Zainudin, Ahmad Danial & Mohamad, Azhar, 2021. "Cross hedging with stock index futures," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 128-144.
    7. Golitsis, Petros & Gkasis, Pavlos & Bellos, Sotirios K., 2022. "Dynamic spillovers and linkages between gold, crude oil, S&P 500, and other economic and financial variables. Evidence from the USA," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    8. Salisu, Afees A. & Vo, Xuan Vinh & Lawal, Adedoyin, 2021. "Hedging oil price risk with gold during COVID-19 pandemic," Resources Policy, Elsevier, vol. 70(C).
    9. Echaust, Krzysztof & Just, Małgorzata & Kliber, Agata, 2024. "To hedge or not to hedge? Cryptocurrencies, gold and oil against stock market risk," International Review of Financial Analysis, Elsevier, vol. 94(C).
    10. Abdulsalam Abidemi Sikiru & Afees A. Salisu, 2023. "Hedging against risks associated with travel and tourism stocks during COVID‐19 pandemic: The role of gold," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1872-1882, April.

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