Gold as a Safe Haven for Tehran Stock Exchange: A Regime Switching Approach

Subject Areas : Financial Knowledge of Securities Analysis

Jalal Seifoddini ¹ , Frydoon Rahnamay Roodposhti ²

1 - Department of Financial Management, Islamshahr Branch, Islamic Azad University, Islamshahr, Iran
2 - Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran

Received: 2016-12-30 Accepted : 2017-05-23 Published : 2019-01-21

Keywords: Safe Haven, Hedge, Diversifier, Regime switching,

Abstract :

Is gold a hedge or diversifier, defined as an asset that is related with stocks on average, or is it a safe haven, defined as an asset that has a special relationship with stock market in the times of market crash? We study the relationship between Tehran Stock Exchange returns and gold returns to investigate the gold role as a hedge, diversifier and a safe haven for Tehran Stock Exchange. We conduct our study through Threshold Regime Switching model to thoroughly determine the different regimes in the gold coin-stock market relations. Due to the high liquidity of Bahar Azadi gold coins market, we use their market price to represent the gold price in Iran. We also consider the effect of global gold price and USD-IRR exchange rate on gold coin-stock market relation. We find that gold coin-stock market relationship doesn’t depend on specific different regimes and gold coins act as a weak hedge for stock market.

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