Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Submission



Dr. Javed Iqbal, Institute of Business Administration, Karachi

Project Type

MSECO Research Project

Access Type

Restricted Access


This paper aims at providing empirical evidence of the potential of precious metals i.e. gold, silver and platinum in diversifying risk of investing in emerging stock markets. Following the approach similar to the Hillier, Draper, & Faff (2006), we investigate whether a decrease in stock market index returns is associated with a significant increase in the precious metal returns for the US, China (Mainland), Russia, Brazil, Hong Kong (China), India and Pakistan using daily data for the period of 1995 to 2014. The diversification potential is investigated in both the normal conditions as well as extreme stock market conditions characterized by excess volatility or lower returns. Keeping in view the empirical characteristics of estimated volatility and returns we made a modification in Hillier, Draper, & Faff (2006) methodology of classifying adverse stock market conditions. The results show that the precious metals do not provide a reliable diversification benefit in the emerging markets. This is in contrast to the US case where we found that gold and silver act as hedge in investing stock market risk.


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