Financial Risk Management
Is Gold a Better Hedge or a Safer Asset Than Shares? – Evidence from India

Article Details
Pub. Date : Mar, 2019
Product Name : The IUP Journal of Financial Risk Management
Product Type : Article
Product Code : IJFRM21903
Author Name : Kiranjit Sett
Availability : YES
Subject/Domain : Finance Management
Download Format : PDF Format
No. of Pages : 12



On the basis of daily price per 10 g of gold and Bombay Stock Exchange (BSE) Sensex for the period January 3, 2000 to December 31, 2017, a fall in return on BSE Sensex was found to have resulted in an increase in return on gold when investment in BSE Sensex generated negative returns with different magnitude, contemporaneously as well as successively in some cases. So, gold has been found to be a strong, safe asset vis-à-vis shares in India, but gold has not been found to be a hedge against shares in India.


In India, gold is loved by people for two reasons, viz., for making ornaments and for holding it as an investment. In India, gold is held by people mostly in the form of jewelry. Gold ornaments have been used by people for showing their status in the society. Gold has also been used as a store of wealth and hence as an investment. The annual average price of gold in India has been rising almost monotonically over fairly a long period of time (Table 1). Over the period of 46 years starting from 1970-71 to 2015-16, the annual average price of gold has fallen only for seven years. On the other hand, the annual average of Bombay Stock Exchange (BSE) Sensex has fallen for nine years during the period 1980-81 to 2015-16. The variability, i.e., 11.5%, which has been measured by standard deviation in the natural log return on gold has been found to be 49% lower than the variability, i.e., 22.7% in the natural log return on BSE Sensex, where both the returns have been computed on the basis of annual average prices. Although the average of annual returns on gold (i.e., 8.70%) over the period 1980-81 to 2015-16 has been found to be 42% lower than the average of annual returns on BSE Sensex (i.e., 14.92%), the average return on gold per 100 units of standard deviation (i.e., 75.5%) has been found to be 15% more than the average return on BSE Sensex per 100 units of standard deviation (i.e., 65.8%).


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