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Dynamic risk spillovers between gold, oil prices and conventional, sustainability and Islamic equity aggregates and sectors with portfolio implications

Walid Mensi, Shawkat Hammoudeh, Idries Mohammad Wanas Al-Jarrah, Ahmet Sensoy and Sang Hoon Kang

Energy Economics, 2017, vol. 67, issue C, 454-475

Abstract: This paper investigates the time-varying equicorrelations and risk spillovers between crude oil, gold and the Dow Jones conventional, sustainability and Islamic stock index aggregates and 10 associated disaggregated Islamic sector stock indexes (basic materials, consumer services, consumer goods, energy, financials, health care, technology, industrials, telecommunications and utilities), using the multivariate DECO-FIAPARCH model and the spillover index of Diebold and Yilmaz (2012). We also conduct a risk management analysis at the sector level for commodity-Islamic stock sector index portfolios, using different risk exposure measures. For comparison purposes, we add the aggregate conventional Dow Jones global index and the Dow Jones sustainability world index. The results show evidence of time-varying risk spillovers between these markets. Moreover, there are increases in the correlations among the markets in the aftermath of the 2008–2009 GFC. Further, the oil, gold, energy, financial, technology and telecommunications sectors are net receivers of risk spillovers, while the sustainability and conventional aggregate DJIM indexes as well as the remaining Islamic stock sectors are net contributors of risk spillovers. Finally, we provide evidence that gold offers better portfolio diversification benefits and downside risk reductions than oil.

Keywords: Commodity markets; Sustainability and conventional equity indexes; Islamic equity markets; Spillovers; Downside risk reductions (search for similar items in EconPapers)
JEL-codes: G14 G15 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/j.eneco.2017.08.031

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