Gold During Recessions : A study about how gold can improve the performance of a portfolio during recessions

• Main Authors: Helmersson, Tobias, Kang, Hana, Sköld, Robin
• Format: Others
• Language: English
• Published: Internationella Handelshögskolan, Högskolan i Jönköping, IHH, Redovisning och finansiering 2008
• Subjects: Gold; Recessions; Portfolio Allocation; Optimal Portfolio; Minimum Variance Portfolio; Correlation; Return to Risk Ratio; DJIA.; Business studies; Företagsekonomi
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:hj:diva-7746

Problem When choosing topic for this study the economy was on the brink of a recession. Many experts made varying statements regarding this fact, and further readings in this area led us to question: can an in- clusion of gold enhance the performance in an index portfolio dur- ing recessions? And if so, how much should be allocated to gold? Purpose The purpose of this thesis is to look back at the historical price de- velopment of gold and DJIA during recessions in order to find out whether an inclusion of gold can improve a DJIA index portfolio held in today’s recession. In addition, by analyzing the risks and pos- sibilities with gold, the optimal allocation of gold in a DJIA portfolio will be investigated in.   Method The methodological approach will be of a quantitative data analysis approach. By using historical data, new empirical findings will be found by using the deductive approach. This method has been cho- sen due to the nature of the purpose and in order to best give a gen- eral answer to our research questions. Conclusion The gold price is strongly influenced by uncertainty, and even though an optimal allocation of gold in each recession could be found, no general optimal allocation applicable in today’s recession could be found. Gold has higher risk (higher variance) than DJIA, but is compensated with higher return as well.