In search of hedges and safe havens during the COVID─19 pandemic: Gold versus Bitcoin, oil, and oil uncertainty

Nassar S. Al-Nassar, Sabri Boubaker, Anis Chaibi and Beljid Makram

The Quarterly Review of Economics and Finance, 2023, vol. 90, issue C, 318-332

Abstract: This paper investigates the potential hedging and safe-haven properties of several alternative investment assets, including gold, Bitcoin, oil, and the oil price volatility index (OVX), against the risks of the Saudi stock market and its constituent sectors in different phases of the COVID19 pandemic. Using daily data, we employ the bivariate dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCCGARCH) technique to model volatilities and conditional correlations. Our findings show that all investigated alternative investment assets had a time-varying hedging role in the Saudi stock market, which became expensive during the early stages of the COVID19 pandemic. Our results also show that the optimal weights for gold were substantially higher than those of other assets, reaching a peak during the pandemic, implying that investors consider gold a flight-to-safety asset. Additionally, we find that gold and OVX were strong hedges and could have served as weak safe havens for investors during the early stages of the COVID19 pandemic, while the remaining assets generally lacked these properties and could be merely used as diversifiers. Our empirical findings offer several key implications for policymakers and portfolio managers in Saudi Arabia that may be applicable to similar markets. In particular, we show that OVX-based products can serve as a promising hedging asset for stock markets in oil-exporting countries.

Keywords: Finance; Gold; Bitcoin; OVX; COVID319; Hedge and safe haven; Emerging markets (search for similar items in EconPapers)
JEL-codes: C32 G01 G11 N25 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:90:y:2023:i:c:p:318-332

DOI: 10.1016/j.qref.2022.10.010

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