Is gold different for risk-averse and risk-seeking investors? An empirical analysis of the Shanghai Gold Exchange

This article aims to study the role of gold quoted on the Shanghai Gold Exchange in the diversification of Chinese portfolios using a mean-risk and stochastic dominance analysis. With the 2004–2014 period, our results show that in general, risk-averse investors prefer not to include gold while risk-...

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Bibliographic Details
Published in:Economic modelling 2015-11, Vol.50, p.200-211
Main Authors: Hoang, Thi-Hong-Van, Wong, Wing-Keung, Zhu, Zhenzhen
Format: Article
Language:English
Subjects:
Bond portfolios
China
Chinese portfolios
Gold
Gold markets
Investment policy
Investments
Mean-risk
Mean-variance portfolio optimization
Portfolio diversification
Portfolio Management
Quantitative Finance
Risk aversion
Risk Management
Shanghai Gold Exchange
Stochastic dominance
Stochastic models
Stock exchanges
Studies
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Summary:This article aims to study the role of gold quoted on the Shanghai Gold Exchange in the diversification of Chinese portfolios using a mean-risk and stochastic dominance analysis. With the 2004–2014 period, our results show that in general, risk-averse investors prefer not to include gold while risk-seeking investors prefer to include it in their stock–bond portfolios, especially in crisis periods. This result is found to be time-varying but not time-frequency dependent and the inclusion of the risk-free asset does not induce relevant impacts. Furthermore, risk-seekers prefer including gold in an equal-weighted portfolio while risk-averters prefer including gold in efficient portfolios. •We investigate the role of gold quoted on the Shanghai Gold Exchange in the diversification of Chinese portfolios from 2004 to 2014.•We distinguish between risk-averse and risk-seeking investors using mean-risk and stochastic dominance approach.•Gold is a good factor in the diversification of Chinese portfolios only for risk-seeking investors and in crisis periods.•The time frequency and inclusion of the risk-free asset do not have significant impact on the above results.•Risk-averters prefer portfolios with gold from the efficient frontier while risk-seekers prefer the equal-weighted one.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2015.06.021