Portfolio and hedging effectiveness of financial assets of the G7 countries

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 p...

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Bibliographic Details
Published in:Eurasian economic review 2018-08, Vol.8 (2), p.183-213
Main Authors: Izadi, Selma, Hassan, M. Kabir
Format: Article
Language:English
Subjects:
Bond markets
Commodity futures
Commodity prices
Corn
Crude oil
Diversification
Economic crisis
Economic models
Economics
Economics and Finance
Equity
Eurozone
Gold
Hedging
Industrialized nations
International finance
Investor behavior
Markets
Original Paper
Portfolio management
Portfolio performance
Portfolios
Precious metals
Rates of return
Research methodology
Securities markets
Silver
Soya beans
Soybeans
Stochastic models
Stock exchanges
Volatility
Wheat
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Summary: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.
ISSN:1309-422X
2147-429X
DOI:10.1007/s40822-017-0090-0