Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach

In this paper, we contribute to the old debate on the dynamic correlation between gold and stock markets by considering a spectral approach within the framework of portfolio hedging. Specifically, we consider eight MENA stock markets (Tunisia, Egypt, Morocco, Jordan, UAE, Saudi Arabia, Qatar, and Om...

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Bibliographic Details
Published in:Computational economics 2023-01, Vol.61 (1), p.197-231
Main Authors: Ourir, Awatef, Bouri, Elie, Essaadi, Essahbi
Format: Article
Language:English
Subjects:
Behavioral/Experimental Economics
Composition
Computer Appl. in Social and Behavioral Sciences
Density
Diversification
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Financial markets
Gold
Hedging
Hedging (Finance)
Investment analysis
Investments
Math Applications in Computer Science
Methods
Operations Research/Decision Theory
Portfolios
Prices
Ratios
Securities markets
Stochastic models
Stock exchanges
Stock market indexes
Stock price indexes
Stocks
Volatility
Wavelet analysis
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Summary:In this paper, we contribute to the old debate on the dynamic correlation between gold and stock markets by considering a spectral approach within the framework of portfolio hedging. Specifically, we consider eight MENA stock markets (Tunisia, Egypt, Morocco, Jordan, UAE, Saudi Arabia, Qatar, and Oman) and examine the optimal composition between gold and the stock market index, with a minimum portfolio risk and a high expected return. Based on the spectral approach, we propose seven portfolio structures and evaluate them through a comparison with the conventional DCC-GARCH method and the most best 10 portfolios constructed by using wavelet approach. The main results show that the spectral-based approach outperforms the DCC-GARCH and the wavelet methods. In fact, the optimal gold-stock composition depends on the spectral density of each stock market index, where a stock market index with a stable spectral density requires more investments in gold than a stock market index with an unstable spectral density.
ISSN:0927-7099
1572-9974
DOI:10.1007/s10614-021-10204-8