Downside risk in Dow Jones equity markets: hedging and portfolio management during COVID-19 pandemic and the Russia–Ukraine war

Purpose - This paper aims to examine the dynamic conditional correlation (DCC) and hedging ratios between Dow Jones markets and oil, gold and bitcoin. Using daily data, including the COVID-19 pandemic and the Russia–Ukraine war. We employ the DCC-generalized autoregressive conditional heteroskedasticity (GARCH) and asymmetric DCC (ADCC)-GARCH models. Design/methodology/approach - DCC-GARCH and ADCC-GARCH models. Findings - The most of DCCs among market pairs are positive during COVID-19 period, implying the existence of volatility spillovers (Contagion-effects). This implies the lack of additional economic gains of diversification. So, COVID-19 represents a systematic risk that resists diversification. However, during the Russia–Ukraine war the DCCs are negative for most pairs that include Oil and Gold, implying investors may benefit from portfolio-diversification. Our hedging analysis carries significant implications for investors seeking higher returns while hedging their Dow Jones portfolios: keeping their portfolios unhedged is better than hedging them. This is because Islamic stocks have the ability to mitigate risks. Originality/value - Our paper may make a valuable contribution to the existing literature by examining the hedging of financial assets, including both conventional and Islamic assets, during periods of stability and crisis, such as the COVID-19 pandemic and the Russia–Ukraine war.