Hedging benefit of safe-haven gold in terms of co-skewness and covariance in stock market

Abstract

© Springer Nature Switzerland AG 2019. This study revisits the question of whether or not gold offers a hedging benefit for stock returns. Thus, we examine this benefit in terms of conditional co-skewness in which relate to the selected stock markets, conditional beta risk, and correlation. We use two-step approach to assess the impact of these factors, including Shanghai, GDAXI, FTSE100, S&P500, and Nikkei225 stock index returns. We firstly estimate the Markov-Switching Dynamic Conditional Correlation GARCH (MS-DCC-GARCH) to obtain the correlation, volatility, and covariance which we further use in co-skewness and beta risk computation. In the second step, the linear regression is employed to investigate the effect of the co-skewness and beta risk on stock returns and examine hedging benefit of gold on stocks. We find some evidences that gold can be acted as a safe haven asset for some major stock markets.