Is gold a hedge against inflation? A wavelet time-scale perspective

Conlon, Thomas; Lucey, Brian M.; Uddin, Gazi Salah

doi:10.1007/s11156-017-0672-7

Cited by 61 publications

(29 citation statements)

References 73 publications

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“…The fact that inflation rate is low in Malaysia does not invalidate the study because we are testing a theoretical relationship; and inflation, no matter how small, represents an erosion of returns to investors. It should be noted that other studies showing low inflation rates includeLee and Lee (2014), showing the monthly inflation of 0.19% in the UK, 0.14% in France, 0.16% in Germany; andConlon, Lucey and Uddin (2018) showing the monthly inflation of 0.3% in the US and 0.2% in Switzerland and Japan.…”

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confidence: 96%

Inflation Hedging Properties of Different Asset Classes in Malaysia

Lee

Isa

2019

AJBA

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Manuscript type: Research paper Research aims: The objective of this study is to examine the inflation hedging properties of various asset classes (stock, gold, real estate, Treasury bond and Treasury bill) in the Malaysian context. Design/Methodology/Approach: This is an empirical analysis using quarterly data from the period of 1980 to 2016. The Autoregressive Distributed Lag (ARDL) bounds cointegration model is used for testing the long-run relationship while the error correction model (ECM) is used for testing the short-run dynamics. Research findings: Our results show that stocks and government bonds in Malaysia can provide a complete hedge against inflation in the long-run while real estate shows partial hedging evidence. Gold and Treasury bills, however, are not inflation hedges. For the shortrun, stocks, gold and real estate show evidence of rapid adjustment to changes in inflation while government securities indicate a mild adjustment. Theoretical contributions/Originality: First, this study provides new evidence on inflation hedges from the perspective of an emerging market. Second, this study uses the ARDL and ECM approach to study the long-run and short-run dynamics of asset returns and inflation. This is in contrast to many previous studies that mainly used the Ordinary Least-Squares (OLS) analysis. Third, this study is important for the Malaysian market because previous studies in

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confidence: 96%

Inflation Hedging Properties of Different Asset Classes in Malaysia

Lee

Isa

2019

AJBA

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“…Several recent studies have suggested that a wavelet‐based multihorizon hedging is a preferred strategy over conventional methods (see Conlon, Lucy, & Uddin, ; Lien & Shrestha, ). The rationale is that a hedger makes decisions in a multiperiod setting in the real world, taking into account hedging preference, hedging horizon length, and hedge effectiveness.…”

Section: Methodsmentioning

confidence: 99%

“…Surprisingly, the application of wavelet‐based multiscale hedging has been rather limited (see, e.g., Conlon et al, ; Fernandez, ; In & Kim, ; Lien & Shrestha, ). For example, Geppert () employed a permanent/transitory decomposition model to investigate the behavior of the multiperiod hedge ratio for five assets.…”

Section: Methodsmentioning

confidence: 99%

“…In other words, the hedger picks a model that is robust to different time scales or horizons, without having to run out of data. 5 Surprisingly, the application of wavelet-based multiscale hedging has been rather limited (see, e.g., Conlon et al, 2017;Fernandez, 2008;In & Kim, 2006;Lien & Shrestha, 2007). For example, Geppert (1995) employed a permanent/ transitory decomposition model to investigate the behavior of the multiperiod hedge ratio for five assets.…”

Section: Methodsmentioning

confidence: 99%

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Hedging performance of multiscale hedge ratios

Sultan

Alexandridis

Hasan

et al. 2019

Journal of Futures Markets

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In this study, the wavelet multiscale model is applied to selected assets to hedge time‐dependent exposure of an agent with a preference for a certain hedging horizon. Based on the in‐sample and out‐of‐sample portfolio variances, the wavelet‐based generalized autoregressive conditional heteroskedasticity (GARCH) model produces the lowest variances. From a utility standpoint, wavelet networks combined with GARCH have the highest utility. Finally, the wavelet‐GARCH model has the lowest minimum capital risk requirements. Overall, the wavelet GARCH and wavelet networks offer improvements over traditional hedging models.

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“…Much of the recent research has revolved around whether or not gold might be considered a hedge or a safe haven. Gold offers an effective hedge against realised inflation both in the short and longterm, and it follows the patterns of the unexpected inflation in the UK, the US, Japan and Switzerland (Conlon et al (2018)). Baur and Lucey (2010) and Sumner et al (2010) examine real returns and volatility spillovers between gold, stocks and bonds in the US.…”

Section: Previous Research On Goldmentioning

confidence: 98%

What Is the Optimal Weight for Gold in a Portfolio?

2018

Self Cite

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We show that the statistical properties of gold are negatively correlated with equities and that including gold in a portfolio will provide diversification benefits. As there is no consensus on the proportion of gold that should be included in a strategic portfolio allocation we propose a visual tool that associates a performance metric with a range of possible asset weighting schemes-a Sharpe ratio response surface. This very surface shows that a target performance metric can be achieved with a large number of different allocations. We further argue that the rebalancing approach based on the surface closest to the benchmark surface under the Hausdorrf distance metric should be selected. Using a data sample between 1990 and 2018, we find that annual rebalancing with a 44-week lookback period achieves the minimum distance from the benchmark surface.

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Is gold a hedge against inflation? A wavelet time-scale perspective

Cited by 61 publications

References 73 publications

Inflation Hedging Properties of Different Asset Classes in Malaysia

Inflation Hedging Properties of Different Asset Classes in Malaysia

Hedging performance of multiscale hedge ratios

What Is the Optimal Weight for Gold in a Portfolio?

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