Hedging Islamic and conventional stock markets with other financial assets: comparison between competing DCC models on hedging effectiveness

Wajdi Hamma (), Ahmed Ghorbel () and Anis Jarboui ()
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Wajdi Hamma: Gouvernance et Entrepreneuriat (LARTIGE) Faculty of Economics and Management
Ahmed Ghorbel: University of Sfax
Anis Jarboui: Gouvernance et Entrepreneuriat (LARTIGE) Faculty of Economics and Management

Journal of Asset Management, 2021, vol. 22, issue 3, No 3, 179-199

Abstract: Abstract This study examines the hedging of Islamic and conventional stock markets risks using diverse financial assets (namely gold, crude oil, VISTOXX, VIX, CDSEU and DJCOM). We apply DCC, ADCC and FDCC models to account for heavy tails and asymmetric returns. We use rolling window analysis to construct out-of-sample one-step-ahead forecasts of dynamic conditional correlations and optimal hedge ratios. The findings indicate that the hedge ratios vary and depend upon the inclusion of hedging assets, portfolio composition and model used. The VISTOXX is the best asset to hedge Islamic and conventional stock portfolios. Moreover, the DCC model often leads to diversification benefits and hedging effectiveness better than the others models.

Keywords: Islamic and conventional stock markets; (A)DCC and FDCC models; Optimal hedge ratio; Hedging effectiveness; Rolling estimation (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/s41260-021-00208-2

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