Should gold be held under global economic policy uncertainty?
Abstract
This paper investigates the ability of gold to hedge worldwide risks from the perspective of global economic policy uncertainty (GEPU). By applying the full- and sub-sample rolling-window bootstrap causality tests to analyze the dynamic interaction between GEPU and gold price (GP). It can be observed that gold can effectively hedge risks of GEPU during the Asian financial crisis, dot-com bubble and global economic crisis, but this result does not hold in non-crisis period. GEPU manifests two-way impacts on the GP in a few periods, this relationship between GEPU and GP being consistent with the hypothesis in the general equilibrium model, which states that changes in GEPU lead to the fluctuations of GP. In turn, GP has both positive and negative impacts on GEPU. In the current complex economic situation, governments and investors can consider gold to hedge risks of GEPU, especially during the economic crises.
Keyword : global economic policy uncertainty, gold price, general equilibrium model, causality, rolling-window, time-varying
How to Cite
Qin, M., Su, C.-W., Xiao, Y.-D., & Zhang, S. (2020). Should gold be held under global economic policy uncertainty?. Journal of Business Economics and Management, 21(3), 725-742. https://doi.org/10.3846/jbem.2020.12040
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Bialkowski, J., Bohl, M. T., Stephan, P., & Wisniewski, T. P. (2015). The gold price in times of crisis. International Review of Financial Analysis, 41, 329–339. https://doi.org/10.1016/j.irfa.2014.07.001
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Chkili, W. (2016). Dynamic correlations and hedging effectiveness between gold and stock markets: Evidence for BRICS countries. Research in International Business and Finance, 38, 22–34. https://doi.org/10.1016/j.ribaf.2016.03.005
Christophe, F., & Julian, V. (2005). The price of gold: A global required yield theory. Journal of Investing, 14(1), 99–111. https://doi.org/10.2139/ssrn.520382
Curran, L., Escaith, H., Hallaert, J. J., & Koopmann, G. (2009). The impact of the financial and economic crisis on world trade and trade policy. Intereconomics, 44(5), 264–293. https://doi.org/10.1007/s10272-009-0305-z
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Ding, Z., Liu, Z., Zhang, Y., & Long, R. (2017). The contagion effect of international crude oil price fluctuations on Chinese stock market investor sentiment. Applied Energy, 187, 27–36. https://doi.org/10.1016/j.apenergy.2016.11.037
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Fang, L., Chen, B., Yu, H., & Qian, Y. (2018). The importance of global economic policy uncertainty in predicting gold futures market volatility: A GARCH-MIDAS approach. Journal of Futures Markets, 38(3), 413–422. https://doi.org/10.1002/fut.21897
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Gokmenoglu, K. K., & Fazlollahi, N. (2015). The interactions among gold, oil, and stock market: Evidence from S&P500. Procedia Economics and Finance, 25, 478–488. https://doi.org/10.1016/s2212-5671(15)00760-1
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Goodnight, G. T., & Green, S. (2010). Rhetoric, risk, and markets: The dot-com bubble. Quarterly Journal of Speech, 96(2), 115–140. https://doi.org/10.1080/00335631003796669
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