Chinese jigsaw: Solving the equity market response to the COVID-19 crisis: Do alternative asset provide effective hedging performance?

Salma Tarchella and Abderrazak Dhaoui

Research in International Business and Finance, 2021, vol. 58, issue C

Abstract: Against COVID-19 risks, this paper examines the hedging performance of alternative assets including some financial assets and commodities futures for the Chinese stock market in a multi-scale setting. Dynamic conditional correlations and optimal hedge ratios of the Shanghai stock exchange with Bitcoin, Dow Jones Industrial Average, Gold, WTI, Bonds and VIX returns are estimated before and during the pandemic crisis. In the short-term, the use of wavelet decomposition shows that Bitcoin provides the best hedge to the Shanghai stock market. In the long-term, commodities dominate. Whereas WTI offers the highest hedging effectiveness, Gold ranks second by a slight margin. These results allow investors to choose the highest returns and protecting tail risk during the current sanitary crisis. Our findings suggest particularly more pronounced economic benefit of diversification including alternative financial assets while commodities futures serve as good hedge assets especially during unpredictable crisis like the current sanitary crisis relating to the covid-19.

Keywords: COVID-19; Shanghai stock exchange; Wavelets; DJIA; Bitcoin; Commodities; Hedging effectiveness (search for similar items in EconPapers)
JEL-codes: F30 G15 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001203

DOI: 10.1016/j.ribaf.2021.101499

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