Gold and Stock Market Linkage: Pre- and Post-Covid-19 Periods

Abstract

Purpose: This study investigates the relationship between gold and stock market returns of Borsa Istanbul for the year 2000-2021. This time period is seperated into two subsamples as pre-Covid-19 and post-Covid-19 periods in order to see whether the relationship between gold and stock prices are affected by the Covid-19 disease or not.

Methodology: The ordinary least square method is utilized for the analyses. The interaction term of credit default swap premiums with stock market returns is also included into baseline model in order to observe effects of stress in the financial markets on this link.

Findings: The empirical results mainly show that there exists a negative and significant relationship between gold and market returns in Turkey for both pre- and post-Covid-19 periods. On the other hand, the interaction term is found to be negative and significant for pre-Covid19 period, which indicates that an decrease in the stock market returns during the times of economic stress lead to an increase in the gold prices before the Covid-19. However, the interaction term is found to be significant and positive for the post-Covid-19 period, which points out that when economic stress upsurge in the pandemic period, a decline in the stock market does not lead to a rise in the gold prices.

Implications: The gold is regarded as safe haven and a hedge tool against equity market investments before the Covid-19 period in difficult times of economy. However, this property of gold as a hedge instrument to be used in diversifying portfolios cannot be valid for the period aftermath of the Covid-19.