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Can gold be used as a hedge against the risks of Sharia-compliant securities? Application for Islamic portfolio management

Aktham Maghyereh (), Basel Awartani () and Abul Hassan
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Aktham Maghyereh: United Arab Emirates University
Abul Hassan: King Fahad University of Petroleum and Minerals

Journal of Asset Management, 2018, vol. 19, issue 6, 394-412

Abstract: Abstract In this paper, we investigate whether gold hedges Sharia-compliant stocks and Sukuk during the period from September 2005 to October 2017. The inference is taken by using both the DCC-GARCH model and the wavelet coherence analysis. On the whole, our finding suggests that gold is not effective in hedging the fluctuations of Sharia-compliant securities. However, we find that combining gold with stocks (and Sukuk) is useful in diversification and portfolio optimization. These results imply that, while gold is an excellent hedge for plain vanilla securities, it is not for Islamic exposures. This is important in light of the increasing amount of assets that are managed according to Islamic screening.

Keywords: Sharia-compliant stocks; Sukuk; Gold; Hedge; Portfolio optimization; Wavelet coherence analysis (search for similar items in EconPapers)
JEL-codes: C32 C11 C14 C21 (search for similar items in EconPapers)
Date: 2018
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