A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?

Detalhes bibliográficos
Autor(a) principal: Alberta Oliveira, Maria
Data de Publicação: 2016
Outros Autores: Santos, Carlos
Tipo de documento: Artigo
Idioma: eng
Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
Texto Completo: http://hdl.handle.net/10400.24/1694
Resumo: In this paper, the authors provide an explanation of the abnormal behavior of gold returns between the 1st of January 2008 and the 31st of December 2013. The authors suggest a behavioral finance foundation to the fact that gold returns exceed those of a wide range of other assets over this period. The approach rests on the safe haven (SH) motif for flights to gold during heavy financial stress periods. The prevailing Baur-Lucey-McDermott paradigm on gold as a SH is shown to be insufficient, as it ignores the roles of volatility and risk preferences. The auhors suggest a formal SH definition, recovering those elements from behavioral finance. Contrary to the previous paradigm, the approach is dataconsistent, in the sample period. The authors find that gold is a SH for all stock markets considered, some exchange rates, and even Euro Area sovereign bonds (including German bunds). They estimate the SH risk premium in all cases. The authors find that investors perceive the distinction between good and bad volatility, and that they do not ask for excess returns when gold volatility is high for SH reasons. This is consistent with the literature on the low frequency of idiosyncratic shocks in the gold market. Furthermore, the authors find evidence that, in a period of high financial uncertainty, fund managers building portfolios consisting only of gold might be acting rationally, contrary to the finance common sense for normal periods. In fact, in the sample period, gold is even strictly dominant in meanvariance terms, when compared to equity.
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spelling A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?Safe havenEuro debt crisisIn this paper, the authors provide an explanation of the abnormal behavior of gold returns between the 1st of January 2008 and the 31st of December 2013. The authors suggest a behavioral finance foundation to the fact that gold returns exceed those of a wide range of other assets over this period. The approach rests on the safe haven (SH) motif for flights to gold during heavy financial stress periods. The prevailing Baur-Lucey-McDermott paradigm on gold as a SH is shown to be insufficient, as it ignores the roles of volatility and risk preferences. The auhors suggest a formal SH definition, recovering those elements from behavioral finance. Contrary to the previous paradigm, the approach is dataconsistent, in the sample period. The authors find that gold is a SH for all stock markets considered, some exchange rates, and even Euro Area sovereign bonds (including German bunds). They estimate the SH risk premium in all cases. The authors find that investors perceive the distinction between good and bad volatility, and that they do not ask for excess returns when gold volatility is high for SH reasons. This is consistent with the literature on the low frequency of idiosyncratic shocks in the gold market. Furthermore, the authors find evidence that, in a period of high financial uncertainty, fund managers building portfolios consisting only of gold might be acting rationally, contrary to the finance common sense for normal periods. In fact, in the sample period, gold is even strictly dominant in meanvariance terms, when compared to equity.Repositório Científico da UMAIAAlberta Oliveira, MariaSantos, Carlos2021-04-22T14:45:39Z2016-01-01T00:00:00Z2016-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.24/1694eng10.21511/imfi.13(3-1).2016.06info:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2022-09-26T16:00:55Zoai:repositorio.umaia.pt:10400.24/1694Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T16:10:04.378558Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse
dc.title.none.fl_str_mv A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
title A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
spellingShingle A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
Alberta Oliveira, Maria
Safe haven
Euro debt crisis
title_short A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
title_full A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
title_fullStr A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
title_full_unstemmed A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
title_sort A volatility-based approach to gold as a safe haven: can it explain the abnormalities in gold returns during periods of extreme financial adversity?
author Alberta Oliveira, Maria
author_facet Alberta Oliveira, Maria
Santos, Carlos
author_role author
author2 Santos, Carlos
author2_role author
dc.contributor.none.fl_str_mv Repositório Científico da UMAIA
dc.contributor.author.fl_str_mv Alberta Oliveira, Maria
Santos, Carlos
dc.subject.por.fl_str_mv Safe haven
Euro debt crisis
topic Safe haven
Euro debt crisis
description In this paper, the authors provide an explanation of the abnormal behavior of gold returns between the 1st of January 2008 and the 31st of December 2013. The authors suggest a behavioral finance foundation to the fact that gold returns exceed those of a wide range of other assets over this period. The approach rests on the safe haven (SH) motif for flights to gold during heavy financial stress periods. The prevailing Baur-Lucey-McDermott paradigm on gold as a SH is shown to be insufficient, as it ignores the roles of volatility and risk preferences. The auhors suggest a formal SH definition, recovering those elements from behavioral finance. Contrary to the previous paradigm, the approach is dataconsistent, in the sample period. The authors find that gold is a SH for all stock markets considered, some exchange rates, and even Euro Area sovereign bonds (including German bunds). They estimate the SH risk premium in all cases. The authors find that investors perceive the distinction between good and bad volatility, and that they do not ask for excess returns when gold volatility is high for SH reasons. This is consistent with the literature on the low frequency of idiosyncratic shocks in the gold market. Furthermore, the authors find evidence that, in a period of high financial uncertainty, fund managers building portfolios consisting only of gold might be acting rationally, contrary to the finance common sense for normal periods. In fact, in the sample period, gold is even strictly dominant in meanvariance terms, when compared to equity.
publishDate 2016
dc.date.none.fl_str_mv 2016-01-01T00:00:00Z
2016-01-01T00:00:00Z
2021-04-22T14:45:39Z
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dc.identifier.uri.fl_str_mv http://hdl.handle.net/10400.24/1694
url http://hdl.handle.net/10400.24/1694
dc.language.iso.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv 10.21511/imfi.13(3-1).2016.06
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