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Do volatility indices diminish gold's appeal as a safe haven to investors before and during the COVID-19 pandemic?
Journal article   Open access   Peer reviewed

Do volatility indices diminish gold's appeal as a safe haven to investors before and during the COVID-19 pandemic?

Tauhidul Islam Tanin, Ashutosh Sarker, Shawkat Hammoudeh and Muhammad Shahbaz
Journal of economic behavior & organization, v 191, pp 214-235
Nov 2021
DOI: https://doi.org/10.1016/j.jebo.2021.09.003
PMID: 34602683
Featured in Collection :   UN Sustainable Development Goals @ Drexel
url
https://doi.org/10.1016/j.jebo.2021.09.003View
Published, Version of Record (VoR)Open Access (License Unspecified),  Open

Abstract

COVID-19 pandemic Gold prices Nonlinear ARDL (NARDL) Volatility asymmetry Volatility indices
•This study tests whether varying volatility indices predict gold prices under different conditions.•Six short-term volatility indices enhanced gold prices as a safe haven before COVID-19.•Negative effects of volatilities have been more substantial than positive effects during COVID-19.•Some volatility results during the COVID-19 period contrast with those in the pre-COVID-19 period.•Only euro volatility predicts gold prices in the long term and during the 2016–2019 pre-COVID-19 period. This study addresses the research question of whether volatility indices of different asset classes reduce gold's appeal as a safe-haven asset before and during the COVID-19 pandemic. We use daily data for seven volatility indices and gold prices and apply the suitable nonlinear autoregressive distributed lag method to analyze the data. Our results indicate that during COVID-19, only the negative Eurocurrency volatility has diminished gold prices in the long term, whereas in the short term, the positive gold, silver, emerging market, and (lagged) financial market volatilities have diminished gold prices. During the pre-COVID-19 normal period, volatilities in the financial, energy, gold, silver, and eurocurrency markets improved gold prices, whereas in the short term, only lagged negative oil volatility diminished gold prices. A robustness test for the 2011–2015 pre-COVID-19 period reveals that this period is to an extent comparable to that of COVID-19. This study reveals no direct effects from emerging markets volatility on gold prices. Notwithstanding, a long memory in gold prices persists and uneven spillover effects exist. Finally, those volatilities predominantly increase gold prices under the normal economic conditions but decrease gold's appeal as a safe haven during crises in the comparable periods. We delineate the implications for investors.

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27 citations in Web of Science
28 citations in Scopus

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Collaboration types
Domestic collaboration
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Web of Science research areas
Economics
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