Gold versus stock investment: An econometric analysis

International Journal of Development and Sustainability Online ISSN: 2168-8662 – www.isdsnet.com/ijds Volume 1 Number 1, June 2012, Page 1-7 ISDS Article ID: IJDS12031001 Gold versus stock investment: An econometric analysis Martin Surya Mulyadi *, Yunita Anwar BINUS University. KH Syahdan 9, West Jakarta 11480, Indonesia MY Consulting Center. Citra II BG 1/49, West Jakarta 11830, Indonesia Abstract It is important to have a portfolio in investment to diversify the investment to different kinds of instruments. Based on previous research, it is concluded that gold is a good portfolio diversifier, a hedge against stock and safe haven in extreme stock market condition. As an investment instrument, stock is exposed to macroeconomic risks and global stock market risks. In this research, we

conduct a comparison between the stock investment and gold investment by using the probit econometric model and data from 1997 to 2011. The final result obtained from the model shows that the gold investment is more advantageous than the stock investment. Keywords: Gold investment, Probit model, Safe haven, Hedge, Investment portfolio Copyright © 2012 ISDS LLC (JAPAN) - All Rights Reserved International Society for Development and Sustainability (ISDS) Cite this paper as: Mulyadi, M.S. and Anwar, Y. (2012), “Gold versus stock investment: An econometric analysis”, International Journal of Development and Sustainability, Vol. 1 No. 1, pp. 1–7. * Corresponding author. E-mail address: martin@binus.ac.id, martin@my-consulting.org International Journal of Development and Sustainability Vol.1 No.1 (2012): 1–7 2 © ISDS www.isdsnet.com 0.00 200.00 400.00 600.00 800.00 1,000.00 1,200.00 1,400.00 1,600.00 1,800.00 2,000.00 Go ld Pri ce (U SD /tro y o un ce ) Jul 97 Jun 00 Apr 03 Mar 06 Jan 09 Nov 11 Gold Price 1. Introduction Investment defined as idle money which is put away for future use (Tyson, 2011). There are a lot of investment instruments in which investors could invest their idle cash including stocks, bonds, mutual funds, real estate, foreign currency, or gold. Gold has always been a much trusted investment which offers a good financial return to the investors. There are significant benefits in gold investment that help meet the objectives of the investors. For example when investors invest in gold, they invest in tangible assets, when compared to investment in stock. Figure 1 shows gold price (using weekly price) starting from July 1997 to November 2011. Figure 1. Gold price from July 1997 to November 2011 This figure shows that gold price increases significantly during the last 14 years. Historically, the gold has been considered as safe haven for the investors; “an investment that is quite safe from crisis”. Figure 1 clearly shows that there is no significant declining price even during US financial crisis of 2007-2008 and European debt crisis of 2010. Trend of gold price continue hiking, although from investors view it is not assured a positive return for them. Figure 2 shows gold return using same period as in figure 1. From figure 2, it could be seen that there is fluctuative weekly return of gold. Although it moves fluctuatively, investment in gold has less-risk exposure than investment in stock. Figure 3 shows comparison between risk of gold investment and risk...

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