Gold as a Hedge and a Diversifier: The Perspective from Lebanon

Samih Antoine Azar


The purpose of this paper is to find out whether gold, valued in Lebanese terms, is a hedge against losses in purchasing power, and whether it is a portfolio diversifier. Gold is found to be a partial hedge to consumer price inflation, a weak hedge to the depreciation of the domestic currency, and a modest hedge to commodity price changes, like oil prices. Although in a multiple regression context gold seems to be unrelated to US stock prices, converted to Lebanese pounds, the bivariate correlation is positive and high. The diversification properties of gold, when it is added to (1) oil, to (2) the DJIA, to (3) the Euro, to (4) a deposit in Lebanese pounds, or to (5) oil, the DJIA, the Euro and a deposit in Lebanese pounds, all together, are studied. It is found that the diversification benefits are rather substantial. The implied price of risk is commensurate with the one in the US financial market. Finally, gold volatility is asymmetrically affected by positive and negative shocks in gold prices, similar to the evidence elsewhere. But unlike the evidence elsewhere the volatility of gold responds strictly to positive shocks but not to negative shocks.

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

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