Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach

Awatef Ourir (), Elie Bouri () and Essahbi Essaadi
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Awatef Ourir: University of Jendouba

No 1511, Working Papers from Economic Research Forum

Abstract: This paper contributes to the old debate on the dynamic correlation between gold and stock markets by considering a spectral approach within the framework of portfolio hedging. Specifically, we consider eight MENA stock markets (Tunisia, Egypt, Morocco, Jordan, the United Arab Emirates, Saudi Arabia, Qatar, and Oman) and examine the optimal composition between gold and the stock market index, with a minimum portfolio risk and a high expected return. Based on the spectral approach, we propose seven portfolio structures and evaluate them through a comparison with the conventional DCC-GARCH method. The main results show that the spectral-based approach outperforms the DCC-GARCH method. In fact, the optimal gold-stock composition depends on the spectral density of each stock market index, where a stock market index with a stable spectral density requires more investments in gold than a stock market index with an unstable spectral density.

Pages: 27
Date: 2021-11-20, Revised 2021-11-20
New Economics Papers: this item is included in nep-ara and nep-rmg
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Published by The Economic Research Forum (ERF)

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Journal Article: Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach (2023)
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