DCC Analysis of the ‘Safe Haven’ Property of Gold against Stock Market: Indian Scenario

A safe haven can be broadly defined as an asset allowing the preservation of wealth during financial turmoil. This can be characterized by looking at its negative correlations with risky assets specifically during crises. The present paper employs a Dynamic Conditional Correlation Autoregressive Conditional Heteroskedasticity (GARCH) Dynamic Conditional Correlation (DCC) (DCC-GARCH) model proposed by Engel (2002) to test the safe haven property of gold against stock market in India during the recent financial crisis. For the purpose we utilize 3001 daily observations (after adjusting for the dates and missing observations due to holidays) on gold price and BSE SENSEX index closing price from 1^st January, 1998 to 30^th September, 2009. The empirical evidence is consistent with the study by Baur and Lucey (2010) that gold is a safe haven and hedge in extreme stock market conditions.