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

Subject Areas : Financial Knowledge of Securities Analysis

Jalal Seifoddini ¹ (Department of Financial Management, Islamshahr Branch, Islamic Azad University, Islamshahr, Iran)
Frydoon Rahnamay Roodposhti 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.

References:

*      احمدیان, ا. و تقوی, م. (1390). اثر آزاد سازی بازار مالی بر نقدینگی بازار سرمایه. دانش مالی تحلیل اوراق بهادار, 4(3), 187-200.

*      سوری, ع. (1392). اقتصاد سنجی (پیشرفته) همراه با کاربرد Eviews8 و Stata12. نشر فرهنگ شناسی.

*      سیفالدینی, ج. و کاملنیا, م. (1391). سرمایه گذاری در طلا: بررسی بازار جهانی و داخلی طلا. نوید مهر.

*   صمدی, س., ابراهیمی, ن. و عقیلی, ف. (1394). اثر نوسانات نرخ ارز و شاخص بازار سهام بر قیمت سکه طلا. اقتصاد پولی، مالی, 22(9), 57-73.

*      طیبی, س., واعظ, م. و ترکی, ل. (1387). نقش کمکهای خارجی و یک‎پارچگی تجاری در تحرک بین‎المللی سرمایه: کاربرد نظریة فلداشتین – هوریوکا. تحقیقات اقتصادی, 43(3).

*      کفاش حسینی, ا. و رستمی, ع. (1392). بررسی تاثیر نوسانات شاخص قیمت و بازده نقدی بورس بر بازدهی سرمایه گذاری در طلا. فصلنامـه علمی پژوهشی دانش سرمایهگذاری, 2(8), 235-254.

*      Arouri, M. E., Lahiani, A., & Nguyen, D. K. (2015). World gold prices and stock returns in China: insights for hedging and diversification strategies. Economic Modelling, 44, 273–282.

*      Bai, J., & Perron, P. (2003). Computation and analysis of multiple structural change models. Journal of applied econometrics, 18(1), 1-22.

*      Baur, D. G., & Lucey, B. M. (2010). is gold a hedge or a safe haven? an analysis of stocks, bonds and gold. The Financial Review, 45, 217-229.

*      Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking & Finance, 34(8), 1886-1898.

*      Beckmann, J., Berger, T., & Czudaj, R. (2015). Does gold act as a hedge or a safe haven for stocks? A smooth transition approach. Economic Modelling, 48, 16-24.

*      Capie, F., T.C., M., & Wood, G. (2005). Gold as a Hedge against the dollar. Journal of International Financial Markets, 15(4), 343–352.

*      Davidson, S., Faff, R., & Hillier, D. (2003). Gold factor exposures in international asset pricing. Journal of International Financial Markets, Institutions and Money, 13(3), 271-289.

*      Gonzalo, J., & Pitarakis, J. Y. (2013). Estimation and inference in threshold type regime switching models. In N. Hashimzade, & M. A. Thornton (Eds.), Handbook of Research Methods and Applications in Empirical Macroeconomics (pp. 189-205). Edward Elgar Publishing.

*      Grubel, H. G. (1968). Internationally diversified portfolios: welfare gains and capital flows. The American Economic Review, 58(5), 1299-1314.

*      Hood, M., & Malik, F. (2013). Is gold the best hedge and a safe haven under changing stock market volatility? Review of Financial Economics, 22(2), 47-52.

*      Iqbal, J. (2017). Does gold hedge stock market, inflation and exchange rate risks? An econometric investigation. International Review of Economics & Finance, 48, 1-17.

*      Kaul, A., & Sapp, S. (2006). Y2K fears and safe haven trading of the US dollar. Journal of international money and finance, 25(5), 760-779.

*      Lucey, B. M., & Li, S. (2015). What precious metals act as safe havens, and when? Some US evidence. Applied Economics Letters, 22(1), 35-45.

*      Markowitz, H. M. (1952). Portfolio selection. The journal of finance, 7(1), 77-91.

*      McCauley, R. N., & McGuire, P. (2009). Dollar appreciation in 2008: safe haven, carry trades, dollar shortage and overhedging. BIS Quarterly Review December.

*      Miyazaki, T., & Hamori., S. (2013). Testing for causality between the gold return and stock market performance: evidence for ‘gold investment in case of emergency’. Applied Financial Econometrics, 23(1), 27-40.

*      Miyazaki, T., Toyoshima, Y., & Hamori, S. (2012). Exploring the dynamic interdependence between gold and other financial markets. Economics Bulletin, 32(1), 37-50.

*      Sumner, S. W., Johnson, R., & Soenen, L. (2010). Spillover effects among gold, stocks, and bonds. Journal of Centrum Cathedra, 3(2), 106-120.

*      Tobin, J. (1958). Liquidity preference as behavior towards risk. The review of economic studies, 25(2), 65-86.

*      Upper, C. (2000). How Safe was the'Safe Haven'? Financial Market Liquidity during the 1998 Turbulences. Deutsche Bundesbank.

World Gold Council. (2016). Gold Demand Trends Third quarter 2016. World Gold Council