Extreme dependencies and spillovers between gold and stock markets : evidence from MENA countries

This study addresses whether gold exhibits the function of a hedge or safe haven as often referred to in academia. It contributes to the existing literature by (i) revisiting this question for the principal stock markets in the Middle East and North Africa (MENA) region and (ii) using the copula-quantile-on-quantile and conditional value at risk methods to detail the risks facing market participants provided with accurate information about various gold and stock market scenarios (i.e., bear, normal, bull). The results provide strong evidence of quantile dependence between gold and stock returns. Positive correlations are found between MENA gold and stock markets when both are bullish. Conversely, when stock returns are bearish, gold markets show negative correlations with MENA stock markets. The risk spillover from gold to stock markets intensified during the global financial and European crises. Given the risk spillover between gold and stock markets, investors in MENA markets should be careful when considering gold as a safe haven because its effectiveness as a hedge is not the same in all MENA stock markets. Investors and portfolio managers should rebalance their portfolio compositions under various gold and stock market conditions. Overall, such precise insights about the heterogeneous linkages and spillovers between gold and MENA stock returns provide potential input for developing effective hedging strategies and optimal portfolio allocations.