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Chinese Journal of Management Science

Chinese Journal of Management Science >

2018 , Vol. 26 >Issue 11: 1 - 10

DOI: https://doi.org/10.16381/j.cnki.issn1003-207x.2018.11.001

Articles

Is the Gold Safe Haven of the Oil? The Portfolio Return and Volatility Perspectives

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  • 1. School of Economics & Management, Beihang University, Beijing 100191, China;
    2. Center for Energy and Environmental Policy Research, Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China;
    3. School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing 100049, China

Received date: 2017-08-14

  Revised date: 2018-05-20

  Online published: 2019-01-23

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Abstract

The oil and gold asset risks are analyzed from two perspectives, i.e. asset portfolio extreme returns and their volatilitiesvia daily oil and gold price data from January 2, 2006 to April 14, 2017.
First, two time series regression models are employed with residuals modelled from 30 GARCH-D processes, rg,t=μg1+δtro,t+εg,t where δt=δ01+δ11·I(ro,t<qo,t0.10)+δ21·I(ro,t<qo,t0.05)+δ31·I(ro,t<qo,t0.01), and rg,t=μg2+δtro,t+εg,t where δt=δ02+δ12·I(t1 ≤ t ≤ t2)+δ22·I(t3 ≤ t ≤ t4), to verify whether the gold is the hedge or safe haven for the oil. The empirical results, and + for the first regression, and  and  for the second regression, show that the gold is neither the hedge nor the safe haven for the oil from the perspectives of portfolio returns.
Second, the DCC-GARCH model is employed to explore the co-movements between oil and gold, and the empirical results show that there exist the dynamic characteristics in the co-movements between oil and gold, but the co-movements may be weaker in the extreme crisis period. Then, the variance-minimum portfolio is constructed via solving the programming problem,P1:minωt Var(rp,t|Ft-1), s.t.0 ≤ ωt ≤ 1, based on the DCC-GARCH model, the portfolio return series rp,t=ωt* ro,t+(1-ωt*)rg,t are obtained, and then the conditional distribution of the returns rp,t is modeled to measure the risks of unit asset portfolio. From the perspective of portfolio volatilities, the empirical results show that the variance-minimum portfolio of oil and gold can reduce the unit asset risk exposures, especially during the extreme oil market period, i.e. the 2008 global financial crisis and the crash in oil price after 2014.
Last, this paper is conducive to understanding the safe haven nature of gold assets, and also offers the investors some practical significances to avoid oil market risks viaoil and gold portfolio strategy.

Key words： oil market; gold market; safe haven; variance-minimum portfolio; value-at-risk

Cite this article

LIU Bing-yue, JI Qiang, FAN Ying . Is the Gold Safe Haven of the Oil? The Portfolio Return and Volatility Perspectives[J]. Chinese Journal of Management Science, 2018 , 26(11) : 1 -10 . DOI: 10.16381/j.cnki.issn1003-207x.2018.11.001

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