Equity Stock Exposure and Financial Asset reallocation in Pacific Region

Abstract: Our study re-evaluates the role of gold as a safe haven asset in the extreme environment situation following the COVID-19 pandemic outbreak. We also provide insights on the volatility spillovers among four developed markets from Pacific zone during the crisis period. We use weekly returns data from 2003-2020 drawn from Australia, New Zealand, Japan and the U.S. It uses MGARCH models with Constant Conditional Correlation (CCC), Dynamic Conditional Correlation (DCC) and asymmetric Corrected Conditional Correlation (aCDCC) models to infer if the volatility spillovers between these markets was significant. Our empirical analysis suggests high volatility spillovers between the US (S&P 500) and Asia-pacific markets during the COVID-19 period and are comparable to the 2008 sub-prime crisis period. Our findings suggests that gold is less likely to be a safe haven for the equity markets in New Zealand, Australia and the USA during times of extreme market turbulence. In contrary, the negative correlation values across all quantiles for Japan (N225) suggests gold can act as a safe haven against equity stock exposure as well as a diversifier during normal periods. Keywords: COVID-19, Pacific-Region, Volatility-Spillovers, Stock Diversifier JEL Classification Number: C10, G11, G15