Should South Asian Stock Market Investors Think Globally? Investigating Safe Haven Properties and Hedging Effectiveness

Md. Abu Issa Gazi (), Md. Nahiduzzaman (), Sanjoy Kumar Sarker, Mohammad Bin Amin (), Md. Ahsan Kabir, Fadoua Kouki, Abdul Rahman bin S Senathirajah and László Erdey
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Md. Abu Issa Gazi: Faculty of Business and Communications, INTI International University, Persiaran Perdana BBN Putra Nilai, Nilai 71800, Negeri Sembilan, Malaysia
Md. Nahiduzzaman: Department of Finance and Banking, Bangabandhu Sheikh Mujibur Rahman Science and Technology University, Gopalganj 8100, Bangladesh
Sanjoy Kumar Sarker: Department of Finance and Banking, Islamic University, Kushtia 7003, Bangladesh
Mohammad Bin Amin: Doctoral School of Management and Business, Faculty of Economics and Business, University of Debrecen, 4032 Debrecen, Hungary
Md. Ahsan Kabir: Department of Statistics and Mathematics, Zhejiang Gongshang University, Hangzhou 310018, China
Fadoua Kouki: Applied Management Program, Applied College at Muhyle, King Khalid University, Abha 61421, Saudi Arabia
Abdul Rahman bin S Senathirajah: Faculty of Business and Communications, INTI International University, Persiaran Perdana BBN Putra Nilai, Nilai 71800, Negeri Sembilan, Malaysia

Economies, 2024, vol. 12, issue 11, 1-37

Abstract: In this study, we examine the critical question of whether global equity and bond assets (both green and non-green) offer effective hedging and safe haven properties against stock market risks in South Asia, with a focus on Bangladesh, India, Pakistan, and Sri Lanka. The increasing integration of global financial markets and the volatility experienced during recent economic crises raise important questions regarding the resilience of South Asian markets and the potential protective role of global assets. Drawing on methods like VaR and CVaR tail risk estimators, the DCC-GJR-GARCH time-varying connectedness approach, and cost-effectiveness tools for hedging, we analyze data spanning from 2014 to 2022 to assess these relationships comprehensively. Our findings demonstrate that stock markets in Bangladesh experience lower levels of downside risk in each quantile; however, safe haven properties from the global financial markets are effective for Bangladeshi, Indian, and Pakistani stock markets during the crisis period. Meanwhile, the Sri Lankan stock market neither receives hedging usefulness nor safe haven benefits from the same marketplaces. Additionally, global green assets, specifically green bond assets, are more reliable sources to ensure the safest investment for South Asian investors. Finally, the portfolio implications suggest that while traditional global equity assets offer ideal portfolio weights for South Asian investors, global equity and bond assets (both green and non-green) are the cheapest hedgers for equity investors, particularly in the Bangladeshi, Pakistani, and Sri Lankan stock markets. Moreover, these results hold significant implications for investors seeking to optimize portfolios and manage risk, as well as for policymakers aiming to strengthen regional market resilience. By clarifying the protective capacities of global assets, particularly green ones, our study contributes to a nuanced understanding of portfolio diversification and financial stability strategies within emerging markets in South Asia.

Keywords: South Asia; financial market; DCC-GARCH; safe haven; hedging effectiveness; sustainable growth (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2024
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