The impact of oil and gold price fluctuations on the South African equity market: volatility spillovers and implications for portfolio management

Kgotso Morema and Lumengo Bonga-Bonga

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims to study the impact of gold and oil price fluctuations on the volatility of the South African stock market and its component indices or sectors – namely, the financial, industrial and resource sectors – making use of the asymmetric dynamic conditional correlation (ADCC) generalised autoregressive conditional heteroskedasticity (GARCH) model. Moreover, the study assesses the magnitude of the optimal portfolio weight, hedge ratio and hedge effectiveness for portfolios that are constituted of a pair of assets, namely oil-stock and gold-stock pairs. The findings of the study show that there is significant volatility spillover between the gold and the stock markets, and the oil and stock markets. This finding suggests the importance of the link between futures commodity markets and the stock markets, which is essential for portfolio management. With reference to portfolio optimisation and the possibility of hedging when using the pairs of assets under study, the findings suggest the importance of combining oil and stocks as well as gold and stocks for effective hedging against any risks

Keywords: Hedge ratio; optimal portfolio weight; ADCC model; crises; hedge effectiveness; Asymmetric; risk; safe haven. (search for similar items in EconPapers)
JEL-codes: C5 C58 G11 G15 (search for similar items in EconPapers)
Date: 2018-04-10
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (2)

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