Re-examining the leverage effect and gold’s safe haven properties with the utilization of the implied volatility of gold: a non-parametric quantile regression approach

Gold as a tradable financial asset has acquired the reputation of a safe haven from market turbulence. The objective of this study is to investigate empirically the relationship between gold prices and implied volatility in the futures markets of gold, re-examine the leverage hypothesis and attempt to make inferences about gold’s safe haven properties. In doing so, it utilizes the recently developed econometric tool of non-parametric quantile regressions. This is the first work to apply the flexible non-parametric quantile regressions on the exchange-traded funds (ETFs) of gold. The data used are daily returns of options of gold shares and implied volatility changes from June of 2008 to December of 2018. The empirical findings indicate that, for the total sample period as well as for almost all of the five sub-periods examined, changes in the implied volatility of gold are insensitive, and not statistically significant, to changes in the price returns of gold. The leverage hypothesis holds for a wide range in the third sub-period. Accordingly, investors in other ETFs (currency or oil) may choose to use gold as shelter during (extreme) economic downturns. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s43546-021-00092-3.