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A comparison of the gold-oil portfolio and oil portfolio: A stochastic dominance approach

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  • AlKhazali, Osamah M.
  • Lean, Hooi Hooi
  • Mirzaei, Ali
  • Zoubi, Taisier

Abstract

Using the stochastic dominance (SD) approach, this paper examines whether the gold-oil portfolio return stochastically dominates the oil portfolio return. The SD results show that the gold-oil portfolio stochastically dominates the one without gold at the SSD and TSD orders. We also find that portfolio risk decreases as we add more gold into the oil portfolios. This indicates that risk-averse investors in the oil market should include gold in their portfolios to maximize their expected utilities. The findings of this paper suggest that investors may design appropriate investments with gold to diversify their oil portfolios.

Suggested Citation

  • AlKhazali, Osamah M. & Lean, Hooi Hooi & Mirzaei, Ali & Zoubi, Taisier, 2021. "A comparison of the gold-oil portfolio and oil portfolio: A stochastic dominance approach," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320302191
    DOI: 10.1016/j.frl.2020.101670
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    Cited by:

    1. Das, Debojyoti & Bhatia, Vaneet & Kumar, Surya Bhushan & Basu, Sankarshan, 2022. "Do precious metals hedge crude oil volatility jumps?," International Review of Financial Analysis, Elsevier, vol. 83(C).
    2. Muhammad Usman, 2023. "A stochastic dominance analysis of conventional and clean energy stocks during different oil market conditions," Empirical Economics, Springer, vol. 65(2), pages 875-897, August.
    3. Kedžo Margareta Gardijan, 2022. "COVID-19 pandemic impact on investment prospective in selected CEE stock markets: A stochastic dominance approach," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 8(2), pages 28-42, December.
    4. Živkov, Dejan & Manić, Slavica & Gajić-Glamočlija, Marina, 2024. "How do precious and industrial metals hedge oil in a multi-frequency semiparametric CVaR portfolio?," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    5. Mensi, Walid & Reboredo, Juan C. & Ugolini, Andrea, 2021. "Price-switching spillovers between gold, oil, and stock markets: Evidence from the USA and China during the COVID-19 pandemic," Resources Policy, Elsevier, vol. 73(C).

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    More about this item

    Keywords

    Gold; Oil; Portfolio diversification; Stochastic dominance analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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