The Relationship Between Gold and Stock Markets During the COVID-19 Pandemic: An Econophysical Approach

Abstract

This chapter aims to analyze portfolio diversification in the US, Europe, UK, Hong Kong, China, Japan, and the gold market (XAU) from January 2019 to July 2020. The results indicate that the markets have very significant causalities, which may call into question efficient portfolio diversification strategies. The DFA exponent coefficients suggest that the random walk hypothesis is rejected in certain markets, which has implications for investors, since some returns can be expected, creating opportunities for arbitrage and abnormal profits. These findings also open space for market regulators to take action to ensure better information among international financial markets. In conclusion, the authors believe investors should diversify their portfolios and invest in less risky markets in order to mitigate risk and improve portfolio efficiency.