Work detail

Gold as a Stable Asset in Economic Recession: An Econometric Analysis

Author: Mgr. Václav Petrželka
Year: 2022 - summer
Leaders: doc. PhDr. Jozef Baruník Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 100
Awards and prizes:
Link: https://dspace.cuni.cz/handle/20.500.11956/174020
Abstract: Due to its reliability, durability and rarity, gold has been seen for centuries
as a safe haven investment that should prevent large losses during financial
crises. However, the question arises whether this characteristic is still relevant
for gold. In our thesis, we distinguish between two main aspects of a safe haven
asset, namely the degree of volatility and the ability to predict as accurately
as possible the evolution of the volatility of a given asset. The major economic
crises of the 20th century show us that the volatility of gold during them was
lower than that of other assets. We therefore follow up with a detailed analysis comparing the volatility of daily returns for gold, stocks, commodities and
cryptocurrencies over the period 2006-2021. We find that gold volatility was
indeed lowest during the Great Recession after 2007 and after the outbreak of
the Covid-19 pandemic in 2020. We also confirm an asymmetric response to
negative returns for stocks and commodities, which is not the case for gold and
cryptocurrencies. We test the ability to predict assets by comparing predicted
daily volatilities and realized daily volatilities over more than a six-month interval in 2014 and 2021. We find no relationship to confirm that gold has higher
predictability than other assets. Our findings provide valuable insights into
asset protection during economic crises. We believe that this topic is very relevant nowadays and can therefore guide not only investors but also households
in their investment strategy
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