Does gold hedge stock market, inflation and exchange rate risks? An econometric investigation

Author Affiliation

Javed Iqbal is Professor at Institute of Business Administration (IBA), Karachi

Faculty / School

Faculty of Computer Sciences (FCS)


Department of Mathematical Sciences

Was this content written or created while at IBA?


Document Type


Source Publication

International Review of Economics and Finance




Econometrics | Economics | Finance


This paper conducts a comprehensive empirical study of hedging potential of gold against adverse movements of stock prices, inflation and exchange rate for India, Pakistan and the United States. Using daily and monthly data covering the period of 1990 to 2013, this paper first explains the average gold returns using an EGARCH model. The paper also investigates whether hedging potential of gold remains equally strong in several bearish and bullish conditions of gold market using a quantile regression approach. It was found that there is a fairly robust evidence of gold acting as a safe haven against exchange rate risk in Pakistan and India. However, the evidence of gold hedging stock market risk is not uniformly strong in varying gold market conditions in the three countries. Also the evidence that gold hedges inflation risk in the US is realized only during the average and bearish conditions of gold market but not during bullish trends. The paper found robust evidence of gold acting as a safe haven against deteriorating local currency in Pakistan using daily data. The hedging and safe have benefit of gold against currency risk is also fairly strong in India as evidenced in the daily data. Thus, the empirical findings of gold acting as either a hedge or a safe haven against the risks in other asset markets need some qualification pertaining to the gold market condition itself.

Indexing Information

HJRS - W Category, Scopus, Web of Science - Social Sciences Citation Index (SSCI)

Journal Quality Ranking

Impact Factor: 2.522

Publication Status