Portfolio diversification during recent stress and stress-free episodes: insights from three alternative portfolio methods

Amine Ben Amar, Chiheb Féki and Makram Bellalah ()
Additional contact information
Amine Ben Amar: UM6P - Africa Business School, Université Mohammed VI Polytechnique
Chiheb Féki: LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne
Makram Bellalah: LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne

Post-Print from HAL

Abstract: The objective of this paper is to examine the structure as well as the performance of different investment strategies using two asset classes (stocks and commodities) and different portfolio methods. More specifically, we construct different portfolios using three diversification strategies-the traditional minimum-variance portfolio strategy, the minimum-correlation portfolio strategy, and the minimum-connectedness portfolio strategy-and compare them. Our results show that the natural gas market seems to be the most isolated market. Moreover, agricultural commodity markets appear to be broadly insensitive to shocks on non-agricultural commodity markets, which support the thesis stating that commodity markets are potentially segmented. The results also suggest a relatively high connectedness among pure financial markets on average and across the entire sample period, and a relatively low connectedness among regional stock markets and long-term commodity futures markets. The GCC stock market is largely disconnected from other regional financial markets. The portfolio analysis show that the performance of the different investment strategies was largely equivalent in terms of cumulative returns. Furthermore, from mid-2019 to mid-2021, and going through the COVID-19 period, the portfolio strategy composed of regional indices and short-term commodity futures contracts, under the minimum-variance approach, outperforms the other investment strategies. However, the same portfolio strategy, but under the minimum-connectedness approach, outperforms all other investment strategies from mid-2021 and during the ongoing Russian-Ukrainian war period.

Keywords: Regional stock markets; Commodity futures markets; Connectedness; Investment strategies; Minimum-variance portfolio; Minimum-correlation portfolio; Minimum-connectedness portfolio (search for similar items in EconPapers)
Date: 2025-01-24
References: Add references at CitEc
Citations:

Published in Annals of Operations Research, 2025, ⟨10.1007/s10479-024-06425-3⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04991194

DOI: 10.1007/s10479-024-06425-3

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().