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Is gold a hedge against equity risk? Malaysian experience based on NARDL approach

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  • Sabry, Saajid
  • Masih, Mansur

Abstract

The chain of financial crises that had been occurring raised a serious concern among the investors regarding its equity risk. There is a need to rethink about gold as a hedge against its equity risk in the long run. Hence, the question is whether gold is a good hedge against equity risk? We use a recently developed time series technique namely, nonlinear ARDL (NARDL) to test the long term asymmetric relationship between gold price and Kuala Lumpur Composite Index. To the best of our knowledge, this would be the first attempt to use NARDL to look into the long run asymmetric relationship between these variables. Our results tend to suggest that gold price in the Malaysian context is determined by external factors, specifically cultural preferences. Also, it has a negative relationship making gold a good hedge against equity risk. This finding would be important for the investors to consider to have gold in their portfolio to hedge against equity risk in Malaysia.

Suggested Citation

  • Sabry, Saajid & Masih, Mansur, 2018. "Is gold a hedge against equity risk? Malaysian experience based on NARDL approach," MPRA Paper 91584, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:91584
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Malaysia; Emerging markets; Gold; Investments; Stock markets; Gold investment; NARDL;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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