Risk transmission between natural gas market and stock markets: portfolio and hedging strategy analysis
Qing Liu and
Finance Research Letters, 2019, vol. 29, issue C, 245-254
This paper investigates the risk transmission and hedging strategies between natural gas market and stock markets. We propose a multivariate GARCH framework which combines regime switching with multivariate long memory and asymmetry GARCH. Results show that there exists granger causality from natural gas market to the Chinese stock markets in crisis regime. Dynamic correlations between these markets are vulnerable to extreme weather, government policies and financial crisis. When looking at the optimal design of a natural gas-stock portfolio, we find that investors in stock markets should have more stocks than natural gas asset in order to reduce their portfolio risk.
Keywords: Risk transmission; Hedging strategy; Regime switching; Long memory and asymmetry GARCH; Natural gas market; Chinese and America stock markets (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:29:y:2019:i:c:p:245-254
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