Hedge effectiveness of put replication, gold, and oil on ASEAN-5 equities

Robiyanto Robiyanto (), Bayu Adi Nugroho (), Eka Handriani () and Andrian Dolfriandra Huruta ()
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Robiyanto Robiyanto: Satya Wacana Christian University
Bayu Adi Nugroho: Perbanas Institute
Eka Handriani: Darul Ulum Islamic Centre Sudirman University GUPPI
Andrian Dolfriandra Huruta: Chung Yuan Christian University

Financial Innovation, 2020, vol. 6, issue 1, 1-29

Abstract: Abstract The previous studies have shown that capital market integration has increased in the ASEAN-5, implying that investors making investment diversification across ASEAN capital markets could only earn limited diversification advantages. To diversify their portfolios, equity investors must find other assets. The main focus of this research is to analyze the effectiveness of put replication, gold, and oil on hedge equities in the ASEAN-5 (Indonesia, Malaysia, Singapore, Thailand, and the Philippines). Protective put strategy, DCC-GARCH, and Markowitz optimization are used to measure hedge effectiveness, risk-adjusted-performance such as Sharpe ratio, drawdown, and Omega ratio. The result reveals that gold is a cheaper hedge than oil and oil-hedged strategy is more expensive in ASEAN-5 compared to oil exporting nations. Also, investors with big exposure to the oil-related portfolio should diversify to Philippine equity. From hedging effectiveness and risk-adjusted-performance perspectives, oil is less attractive than money market instruments and gold. This study also implies that risk-averse investors should prefer to put replication or guaranteed financial products compared to commodities-hedged strategy.

Keywords: DCC-GARCH; Gold; Oil; Minimum variance; Portfolio insurance (search for similar items in EconPapers)
JEL-codes: C22 G11 G13 Q02 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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DOI: 10.1186/s40854-020-00199-w

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