Does Gold Hedge Against Stock Market Returns? Bitcoin? Evidence from Tri-variate BEKK Regressions

The paper investigates the hedging capabilities of gold against various stock market returns employing tri-variate VARMA-ASYMM. VGARCH with bitcoin. Bitcoin hedging capability would be different from gold even though both have the decentralized supplier, limited quantity of supply and some of money-like functions. Strong positive effects from stock markets onto gold are found to exist in Canada, India and Japan while weak effects in SP500 and KOSPI. Gold shows the positive hedging against bitcoin in UK stock market. Rising bitcoin increases gold price in UK, India and Japan markets. Bitcoin might be carefully used but not with the equal magnitude as a hedge against stocks in S&P 500, FTSE100 and Nikkei225 and KOSPI including various stock markets such as Canada, India and Hangseng. The paper also reveals that in SP500, the cross-shock term significantly decreases gold volatility but not bitcoin volatility, while in FTSE100 it decreases bitcoin volatility. The significantly negative asymmetries in gold but insignificant asymmetries in bitcoin, are found in US and Korea stock markets. Stock market volatility increases gold volatility in UK, Canada, Hangseng and Korea stock markets. Cross-terms among three variables with bi-directional causality play the important role. It would help the strategic risk management, engraving thoroughly that gold has hedging capabilities stronger than bitcoin which has the considerably bigger volatility.