Prague Economic Papers 2022, 31(2):169-194 | DOI: 10.18267/j.pep.802

Portfolio Diversification during Covid-19 Outbreak: Is Gold a Hedge and a Safe-Haven Asset?

Vladimir Živanović ORCID...a, Jelena Vitomir ORCID...a, Bojan Đorđević ORCID...b
a Megatrend University, Faculty of Business Studies, Belgrade, Republic of Serbia
b Megatrend University, Faculty of Management, Zaječar, Republic of Serbia

Price changes on all international financial and commodity markets have shown a sig- nificant correlation. The correlation dependence increased due to macroeconomic changes that led to cyclical economic trends caused by the COVID-19 pandemic. In the new economic circumstances, there has been a change in investment strategy of individual and institutional investors. The investment portfolios have increased in demand related to the purchase of gold, seen as a safe-haven asset, which has led to significant growth in aggregate demand on the international precious metals market. This paper deals with a dynamic conditional correlation (DCC) between the investment in gold as an asset and the movement of major world market indices. We used cryptocurrency (bitcoin) volatility as an independent variable in the model. We tested its correlation to the other major market indices and gold as a safe-haven asset. Related to a proposed model based on GARCH DCC and the Generalised Reduced Gradient (GDR) algorithm, we set up the Hedging Effectiveness (HE) index and an optimally weighted investment portfolio.

Keywords: COVID-19, gold, market indices, bitcoin, portfolio diversification, hedging, safe-haven asset
JEL classification: G15, G20, G21, G23

Received: November 16, 2021; Revised: March 7, 2022; Accepted: April 1, 2022; Prepublished online: May 6, 2022; Published: May 9, 2022  Show citation

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Živanović, V., Vitomir, J., & Đorđević, B. (2022). Portfolio Diversification during Covid-19 Outbreak: Is Gold a Hedge and a Safe-Haven Asset? Prague Economic Papers, 31(2), 169-194. doi: 10.18267/j.pep.802
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