A Data-Driven Econometric Analysis of the Time-Varying Hedge and Safe Haven Properties of Gold and Silver in Emerging

Abstract

Precious metals play an important role in portfolio diversification and financial risk management, particularly during periods of economic uncertainty and stock market instability. However, their defensive properties may vary depending on market conditions and the intensity of financial shocks. This study aims to examine the time-varying hedging and safe-haven properties of gold and silver in the Indian stock market, with particular attention to their capacity to protect investors during periods of financial stress. The research employs daily price data for the BSE SENSEX, gold, and silver covering January 2003 to December 2023. The methodological framework combines descriptive statistics, correlation analysis, Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) modelling, and quantile regression to assess asset dependence under normal and extreme market conditions. The results reveal substantial differences in the defensive characteristics of the two metals. Gold exhibits a weak negative average correlation with the BSE SENSEX (-0.08), which becomes more pronounced during the Global Financial Crisis (-0.21) and the COVID-19 pandemic (-0.18). Quantile regression produces negative coefficients for gold at the 0.05 (-0.28) and 0.10 (-0.21) quantiles, indicating potential safe-haven properties during severe equity market downturns. Conversely, silver demonstrates a weak positive average correlation with stock returns (0.12) and positive coefficients across all examined quantiles, suggesting limited protective capacity during extreme market conditions. The findings indicate that gold exhibits more consistent defensive characteristics than silver, while its protective properties remain dependent on market conditions. The study contributes to understanding the dynamic relationships between precious metals and equity markets and provides insights relevant to portfolio diversification and financial risk management in emerging economies. Further research should incorporate additional emerging markets, alternative safe-haven assets, structural break models, and volatility spillover analysis to examine the robustness of these relationships across different financial environments.