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<p>Based on the Intertemporal Capital Asset Pricing Model (ICAPM) framework, this study empirically evaluates the hedging effectiveness of gold through an asset pricing lens; it examines the pricing of intertemporal risk in the Indian equity market by incorporating gold as a potential state variable. Using daily data spanning 2005 to 2024 for NIFTY-50 stocks, we generate time-varying conditional covariances using the DCC-GARCH model. To account for cross-equation error correlation while imposing common slope coefficients across return equations, we employ a panel Seemingly Unrelated Regression (SUR) model. Findings reveal that conditional covariances between the market, gold, and treasury bills are all statistically significant, hence acting as priced risk factors within the ICAPM structure. Notably, gold exhibits a negative risk premium, thereby confirming its role as an intertemporal hedge. Conversely, the positive and statistically significant risk premia on the market and treasury bills reflect compensation for systematic risks and sensitivity to shifts in the investment opportunity set, respectively. The findings add to the existing literature by reaffirming gold’s hedging properties in the Indian equity market, albeit from an asset pricing perspective by assessing its risk premium. The study offers meaningful policy insights, especially in promoting gold as a financial instrument through regulated investment channels in India’s financial landscape.</p>

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Risk premia and hedging role of gold in the ICAPM framework: evidence from India

  • 期刊论文

  • 发表日期：

    2026年7月11日

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  • Bisma Raina,
  • Paramita Mukherjee,
  • Samaresh Bardhan

摘要

Based on the Intertemporal Capital Asset Pricing Model (ICAPM) framework, this study empirically evaluates the hedging effectiveness of gold through an asset pricing lens; it examines the pricing of intertemporal risk in the Indian equity market by incorporating gold as a potential state variable. Using daily data spanning 2005 to 2024 for NIFTY-50 stocks, we generate time-varying conditional covariances using the DCC-GARCH model. To account for cross-equation error correlation while imposing common slope coefficients across return equations, we employ a panel Seemingly Unrelated Regression (SUR) model. Findings reveal that conditional covariances between the market, gold, and treasury bills are all statistically significant, hence acting as priced risk factors within the ICAPM structure. Notably, gold exhibits a negative risk premium, thereby confirming its role as an intertemporal hedge. Conversely, the positive and statistically significant risk premia on the market and treasury bills reflect compensation for systematic risks and sensitivity to shifts in the investment opportunity set, respectively. The findings add to the existing literature by reaffirming gold’s hedging properties in the Indian equity market, albeit from an asset pricing perspective by assessing its risk premium. The study offers meaningful policy insights, especially in promoting gold as a financial instrument through regulated investment channels in India’s financial landscape.