Does Gold Act As A Hedge And A Safe Haven For Stock Of BRICS Countries?

Since the breakup of the Bretton Woods system,gold is no longer the foundation stone of the international monetary system,but as an asset with dual attributes of goods and finance,gold still attracts the attention of many investors and researchers.With the increase of uncertainty in financial markets in recent years,it is becoming more and more important to hedge market risk through diversified portfolios.Capital is the driving force and source of financial market development,and the stock market is also the most important part of the capital market.The prosperity of the securities market has established the sustained stability of the capital market of a country.As the economic aggregates of the BRICS countries are growing rapidly and directly affect the United States and other developed countries,takes the emerging countries with rapid economic development such as the BRICS Countries as the research object,and studies whether gold has a role of hedge and safe haven for BRICS stock markets.So this article has a very important practical significance.This article uses the daily data of gold and the stock index of the BRICS countries(Brazil,Russia,India,China,and South Africa)from September 1,1995 to September 25,2017 to build the DCC-GARCH model and the time-varying quantile parameter GARCH model,and calculate the optimal investment proportion and the best hedge ratio of gold in the“gold\stock" portfolio.The empirical results show that when the market is in general situation,gold does not have a hedge effect on the stock market of the BRICS countries.When the market is in an extreme situation(such as economic crisis and bear markets),gold acts as safe haven for the stock markets of Brazil,India and China,but gold doesn't have safe haven effect on the stock markets of Russia and South Africa.For international investors who already hold BRICS's "gold\stock" asset portfolios,they should allocate more gold in order to minimize risk without reducing portfolio earnings.This article suggests that investors who invest in the Brazilian,Indian and Chinese stock markets should increase their allocation of gold during periods of turmoil in the stock market.However,for investors investing in Russian and South African stock markets,they should hold more cash assets with stronger liquidity and reduce investment in gold and stocks,because gold does not hedge against the stock market during the crisis periods.