Post by Sapphire Capital on Jan 15, 2010 23:55:23 GMT 4
The Volatility of Gold
Dirk G. Baur
University of Technology, Sydney - School of Finance and Economics
December 21, 2009
Abstract:
The volatility of equity returns generally exhibits an asymmetric reaction to positive and negative shocks. Economic explanations for this phenomenon are leverage and volatility feedback effects. This paper studies the volatility of gold and demonstrates that there is an inverted asymmetric reaction of gold to positive and negative shocks, i.e. positive shocks increase the volatility by more than negative shocks. The paper argues that this effect is a result of the safe haven property of gold. Macroeconomic and financial uncertainty is transmitted from the equity market to the gold market causing the special asymmetric reaction. The empirical results hold for gold bullion and gold coins denominated in different currencies, different time periods and for different distributional assumptions. Finally, we show that the inverted volatility effect of gold can lower the aggregate risk of a portfolio for specific correlation levels.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1526389_code339445.pdf?abstractid=1526389&mirid=1
Dirk G. Baur
University of Technology, Sydney - School of Finance and Economics
December 21, 2009
Abstract:
The volatility of equity returns generally exhibits an asymmetric reaction to positive and negative shocks. Economic explanations for this phenomenon are leverage and volatility feedback effects. This paper studies the volatility of gold and demonstrates that there is an inverted asymmetric reaction of gold to positive and negative shocks, i.e. positive shocks increase the volatility by more than negative shocks. The paper argues that this effect is a result of the safe haven property of gold. Macroeconomic and financial uncertainty is transmitted from the equity market to the gold market causing the special asymmetric reaction. The empirical results hold for gold bullion and gold coins denominated in different currencies, different time periods and for different distributional assumptions. Finally, we show that the inverted volatility effect of gold can lower the aggregate risk of a portfolio for specific correlation levels.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1526389_code339445.pdf?abstractid=1526389&mirid=1