EconPapers    
Economics at your fingertips  
 

Hedging and diversification across commodity assets

Ilyes Abid, Abderrazak Dhaoui, Stéphane Goutte and Khaled Guesmi
Additional contact information
Ilyes Abid: ISC Paris - Institut Supérieur du Commerce de Paris

Post-Print from HAL

Abstract: We investigate the conditional cross effects and volatility spillover between equity markets and commodity markets (oil and gold), Fama and French HML and SMB factors, volatility index (VIX) and bonds using different multivariate GARCH specifications considering the potential asymmetry and persistence behaviours. We analyse the dynamic conditional correlation between the US equity market and a set of commodity prices and risk factors to forecast the transmission of shock to the equity market firstly, and to determine and compare the optimal hedge ratios from the different models based on the hedging effectiveness of each model. Our findings suggest that all models confirm the significant returns and volatility spillovers. More importantly, we find that GO-GARCH is the best-fit model for modelling the joint dynamics of different financial variables. The results of the current study have implications for investors: (i) the equity market displays inverted dynamics with the volatility index suggesting strong evidence of diversification benefit; (ii) of the hedging assets gold appears the best hedge for the US equity market as it has a higher hedge effectiveness than oil and bonds over time; and (iii) despite these important results, a better hedge may be obtained by using well-selected firm sized and profitability-based portfolios.

Keywords: Equity markets; GARCH models; multivariate; hedging diversification; commodities (search for similar items in EconPapers)
Date: 2019-12-18
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Published in Applied Economics, 2019, pp.1-21. ⟨10.1080/00036846.2019.1693016⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Hedging and diversification across commodity assets (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02509833

DOI: 10.1080/00036846.2019.1693016

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD (hal@ccsd.cnrs.fr).

 
Page updated 2025-03-22
Handle: RePEc:hal:journl:hal-02509833