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Tail dependence between gold and sectorial stocks in China: Perspectives for portfolio diversication

Joscha Beckmann (), Theo Berger (), Robert Czudaj () and Thi-Hong-Van Hoang ()
Additional contact information
Theo Berger: University of Bremen, Department of Business Administration, Chair for Applied Statistics and Empirical Economy
Thi-Hong-Van Hoang: Montpellier Business School, Montpellier Research in Management

No 12, Chemnitz Economic Papers from Department of Economics, Chemnitz University of Technology

Abstract: This article analyzes the relationship between gold quoted on the Shanghai Gold Exchange and Chinese sectorial stocks from 2009 to 2015. Using different copulas, our results show that there is weak but significant tail dependence between gold and Chinese sectorial stock returns. This means that the dependence between extreme movements of the two assets is not pronounced and confirms the role of gold as a safe haven asset. Based on analyzing the efficient frontier, CCCGARCH optimal weights, hedge ratios and hedging effectiveness, we further show that adding gold into Chinese stock portfolios can help to reduce their risk. Gold appears to be the most efficient diversifier for stocks of the materials sector and the less efficient for the utilities sector. As a robustness check, we also compare gold to oil and indicate that gold is more efficient than oil in the diversification of Chinese stock portfolios.

Keywords: Shanghai Gold Exchange; Chinese sectorial stocks; oil; copulas; portfolio implications (search for similar items in EconPapers)
JEL-codes: G11 C58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-rmg and nep-tra
Date: 2017-07, Revised 2017-07
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Published in Chemnitz Economic Papers, July 2017, pages 1-34

Downloads: (external link)
https://www.tu-chemnitz.de/wirtschaft/vwl1/RePEc/d ... paper/CEP012_SGE.pdf First version, 2017 (application/pdf)

Related works:
Journal Article: Tail dependence between gold and sectorial stocks in China: perspectives for portfolio diversification (2019) Downloads
Working Paper: Tail dependence between gold and sectorial stocks in China: perspectives for portfolio diversification (2016)
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