The purpose of this paper is to examine the relation between gold return and stock market return and whether its relation changes in times of consecutive negative market returns for an emerging market, Malaysia.
The paper applies the autoregressive distributed model to link gold returns to stock returns with TGARCH/EGARCH error specification using daily data from August 1, 2001 to March 31, 2010, a total of 2,261 observations.
A significant positive but low correlation is found between gold and once‐lagged stock returns. Moreover, consecutive negative market returns do not seem to intensify the co‐movement between the gold and stock markets as normally documented among national stock markets in times of financial turbulences. Indeed, there is some evidence that the gold market surges when faced with consecutive market declines.
Based on these results, there are potential benefits of gold investment during periods of stock market slumps. The findings should prove useful for designing financial investment portfolios.
The paper evaluates the role of gold from a domestic perspective, which should be more relevant to domestic investors in guarding against recurring heightened stock market risk.
