Stock Market, Gold Market,and The Dependence Of Their Quantiles

If gold is added to the portfolio constituted by stocks,the risk of the entire portfolio will be reduced.That is,gold is a hedge of stock.So as investment good,gold has been widely concerned.When the financial crisis happened,investors want to find some other investment goods which could avoid the risk of collapse of the stock market.Precious metals such as gold,in the form of physical asset,came to be favored by investors.In the case of extreme volatility in the stock market,whether gold plays a role as safe haven is attracting increasing attention.In addition to gold,oil is also often considered as a kind of investment goods by investors.The shock of oil market could affect the performance of stock market and the performance of gold market.In order to examine the impact of the net shock of stock market on gold market earnings as well as the relationship between the quantiles of the net shock of stock market and the return of gold market,I have to separate the net shock of stock market from the influential effect of oil market on stock market.Besides,this article also discusses the impact of the net shock of stock market on the gold market under extreme market conditions.According to the above discussion,there are two step of analysis in this paper.The first step is using the SVAR method to separate the net shock of stock market from the influential effect of oil market on stock market,which contributes to find out the net shock of stock market.The second step is using Quantile-on-Quantile approach to research the relationship of the relationship between the quantiles of net shock of stock market and the return of gold market by controlling other factors,such as US Dollar Index,bond yields and the return of gold market at last period.Through the analysis of the data from January 1980 to November 2016,the correlation coefficient between the gold market and the stock market is very low.Therefore,gold can reduce the risk of portfolio without reducing the expected return.In addition,the long-term negative correlation between the gold market and the stock market shows that gold can play a hedge against the risk of the stock.After the first step,I can remove the impact of the oil market on the stock market.And I found that the negative correlation coefficient between the net shock of stock market and gold market is lower than the negative one between stock market and gold market.This shows that the necessity of using the S VAR model.After excluding the impact of the oil market on the stock market by SVAR,I found that a large negative net shock of the stock market will lead to an large increase in the gold market's gains and the large positive net shock of the stock market will lead to an large decrease in the gold market's gains by using non-parametric regression model and semi-parametric regression model.This regression result means that gold is a safe haven against stock.Furthermore,I ran a quantile regression and found that the influence of the shock of stock market on gold market depends on the performance of the gold market.Under different condition,the influence is not the same.Finanlly,through Quantile-on-Quantile approach,I came to get a conclusion that when the gold market performs not so well,the bull market of stock will make the gold market more bearish;when the gold market behaves well,the bear market will encourage the bull market of gold.In addition,the positive net shock of the stock market will significantly affect the gold market gains;however,when the net shock of the stock market is negative,the stock market has no significant influence on the gaining of gold market.That is,the impact of the stock market upon the gold market is asymmetric.