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Portfolio and hedging effectiveness of financial assets of the G7 countries

Selma Izadi () and M. Kabir Hassan ()
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Selma Izadi: Loyola University of New Orleans
M. Kabir Hassan: University of New Orleans

Eurasian Economic Review, 2018, vol. 8, issue 2, 183-213

Abstract: Abstract In this paper we investigate the dynamic conditional correlations between the equity and commodity returns for G7 countries from January, 2000 to October, 2014. The commodity futures include Brent, crude, gold, silver, wheat, corn and soybean futures, BCOM and CRB which are two aggregate commodity price indices. The results illustrate the lowest dynamic conditional correlations belong to the portfolios that include gold, wheat and corn futures for all the Equity indices. In addition, the correlations between the gold/equity pairs are negative during the financial crisis. This fact indicates the benefit of hedging stock portfolios with gold futures whenever we have stress in the financial markets. The findings from hedging effectiveness suggest that there are diversification advantages for all the commodity/stock portfolios than only stock portfolios. Finally, including CRB, BCOM and gold future to stock portfolios provides the optimal hedging effectiveness ratios. These findings can be helpful in developing new commodity indices.

Keywords: GARCH-DCC; Stock markets; Future markets; Portfolio design; Hedging effectiveness (search for similar items in EconPapers)
JEL-codes: G11 G01 G15 G22 (search for similar items in EconPapers)
Date: 2018
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