Gold in the South African market: a safe haven or hedge?
Date
2015-01-30
Authors
Bodington, Lauren
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Abstract
The evolution of gold from a precious metal to a means of exchange and a financial asset has allowed gold to exhibit unique characteristics from a portfolio management perspective. This research report seeks to analyse the characteristics of gold in order to determine its feasibility as a safe haven asset, a diversifier or a hedge in the South African capital markets during different economic climates. This study replicates the methodology of Baur and Lucey (2010) and uses two principle regression models to analyse the properties of gold as a safe haven, a hedge or a diversifier for the South African Investor. Despite the general consensus of gold as a safe haven asset, academic research on this topic to date is relatively sparse, especially within a South African context. This study therefore provides empirical evidence to support the hypothesis of gold as a safe haven and a hedge in a South African context.
The findings of this research show that, for South African investors investing in South African equities, gold acts as a hedge on average. In relation to the finding for gold as a safe haven or a hedge for the South African bond market, it was found that gold does act as a hedge on average. The findings further demonstrate that for a South African investor, gold does not act as a hedge for international stocks. The portfolio analysis section of this paper demonstrates that the return for gold is positive on the day that an extreme negative shock occurs in the stock market. Furthermore, the safe haven effect of gold is eliminated after two trading days
Description
Thesis (M.Com. (Finance)--University of the Witwatersrand, Faculty of Commerce, Law and Management, School of Economic and Business Sciences, 2014.