Hedging oil price risk with gold during COVID-19 pandemic

Afees Salisu, Xuan Vinh Vo and Adedoyin Lawal

Resources Policy, 2021, vol. 70, issue C

Abstract: This paper assesses the role of gold as a safe haven or hedge against crude oil price risks. We employ the asymmetric VARMA-GARCH model, using daily data from January 2016 to August 2020. To account for the impact of COVID-19 pandemic, we partitioned the data into two to reflect the periods before and during the pandemic. Our empirical results find gold as a significant safe haven against oil price risks. The optimal portfolio and hedging analyses conducted also validate the hedging effectiveness of gold against risk associated with oil. The robustness of our results is further confirmed using three other prominent precious metals - silver, platinum, and palladium. In sum, our results are useful for investors and portfolio managers that are desirous of using gold and other precious metals as portfolio rebalancing tools to minimize or circumvent risks associated with volatile oil returns.

Keywords: Gold; Oil; Safe haven; Hedging; VARMA GARCH (search for similar items in EconPapers)
JEL-codes: C3 G1 Q41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (66)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:70:y:2021:i:c:s0301420720309284

DOI: 10.1016/j.resourpol.2020.101897

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