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Analyzing gold returns: Indian perspective

Author

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  • Moradia, Abha
  • Mehta, Ashish C.

Abstract

Investors are forever in need of an asset that adds value to the portfolio. Therefore, along with fixed income investments, stocks, gold and other assets are inevitable parts of a balanced portfolio. For Indian investors, gold is not only an investment asset but a commodity with a major importance in the social customs that makes it all the more interesting to study. As an investment asset, it is considered a diversifier asset and a hedging asset. Not only that, it is called a ‘safe-haven’ asset for times of economic distress, meaning that it retains its value when the stock market is giving low or negative returns. In this paper, we analyze the risk-return parameters of both the gold and Sensex for a period from 1992 to 2017 and find out how they perform along with each other. We also do detailed subperiod analysis in terms of Pearson’s correlation coefficient and see how it changes in pre-recession and post-recession period. We analyze whether gold is a diversifier asset, a hedge, a safe haven or all three for Indian investors. It is interesting to note how the exchange rate variability has a great impact on gold’s rate of return.

Suggested Citation

  • Moradia, Abha & Mehta, Ashish C., 2018. "Analyzing gold returns: Indian perspective," MPRA Paper 92989, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:92989
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    File URL: https://mpra.ub.uni-muenchen.de/92989/1/MPRA_paper_92989.pdf
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    References listed on IDEAS

    as
    1. Baur, Dirk G. & McDermott, Thomas K., 2010. "Is gold a safe haven? International evidence," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1886-1898, August.
    2. 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.
    3. Beckmann, Joscha & Berger, Theo & Czudaj, Robert, 2015. "Does gold act as a hedge or a safe haven for stocks? A smooth transition approach," Economic Modelling, Elsevier, vol. 48(C), pages 16-24.
    4. Muhammad Mansoor Baig & Muhammad Shahbaz & Muhammad Imran & Mehwish Jabbar & Qurat Ul Ain, 2013. "Relationship between Gold and Oil Prices and Stock Market Returns," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 5(5), pages 28-39, October.
    5. Demidova-Menzel, Nadeshda & Heidorn, Thomas, 2007. "Gold in the investment portfolio," Frankfurt School - Working Paper Series 87, Frankfurt School of Finance and Management.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    gold; stock market; risk-return; correlation coefficient; hedge; safe-haven asset;
    All these keywords.

    JEL classification:

    • 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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