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Identifying the Role of Gold on Sustainable Investment in Indonesia: The DCC-GARCH Approach

Author

Listed:
  • Robiyanto Robiyanto

    (Faculty of Economics and Business, Satya Wacana Christian University, Salatiga 50711, Indonesia)

  • Bayu Adi Nugroho

    (Sekolah Tinggi Ilmu Ekonomi Yayasan Keluarga Pahlawan Negara (STIE YKPN), Yogyakarta 55281, Indonesia)

  • Andrian Dolfriandra Huruta

    (Faculty of Economics and Business, Satya Wacana Christian University, Salatiga 50711, Indonesia)

  • Budi Frensidy

    (Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia)

  • Suyanto Suyanto

    (Sekolah Tinggi Ilmu Ekonomi IPWI Jakarta, Bogor 16966, Indonesia)

Abstract

This research investigated the performance of a dynamic portfolio that consists of sustainable/ethical stocks and gold. The main purpose of this study is to prove that the inclusion of gold in sustainable/ethical stocks portfolios could produce better performance. Therefore, the method used in this research, DCC-GARCH, was relaxing the basic assumptions in the theory of modern portfolio that is under the assumption of the normality of stock return and securities would have constant correlation. This research used data such as SRI-KEHATI Index (SKI) and Jakarta Islamic Index (JII) in Indonesia as a proxy for sustainable investments. Additionally, this research used gold from 2013 to 2019. This study is able to provide evidence regarding the ability of a dynamic portfolio to minimize the level of portfolio risk. However, this led a lower rate of return. Based on the OLS regression, gold is also proven as a weak safe haven for sustainable investment in Indonesia. Investors who believe in ethical investment may include gold in this time-varying approach when formulating the portfolio to reduce risk significantly. The inclusion of gold in portfolios could produce hedging effectiveness. Overall, this study supports some previous findings regarding the ability of gold as an instrument, which could reduce investment risk if involved in a portfolio.

Suggested Citation

  • Robiyanto Robiyanto & Bayu Adi Nugroho & Andrian Dolfriandra Huruta & Budi Frensidy & Suyanto Suyanto, 2021. "Identifying the Role of Gold on Sustainable Investment in Indonesia: The DCC-GARCH Approach," Economies, MDPI, vol. 9(3), pages 1-14, August.
    • Handle: RePEc:gam:jecomi:v:9:y:2021:i:3:p:119-:d:620561
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    References listed on IDEAS

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    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    3. Hoang, Thi-Hong-Van & Lean, Hooi Hooi & Wong, Wing-Keung, 2015. "Is gold good for portfolio diversification? A stochastic dominance analysis of the Paris stock exchange," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 98-108.
    4. Ciner, Cetin & Gurdgiev, Constantin & Lucey, Brian M., 2013. "Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 202-211.
    5. João F. Caldeira & Guilherme V. Moura & Francisco J. Nogales & André A. P. Santos, 2017. "Combining Multivariate Volatility Forecasts: An Economic-Based Approach," Journal of Financial Econometrics, Oxford University Press, vol. 15(2), pages 247-285.
    6. Ghazali, Mohd Fahmi & Lean, Hooi Hooi & Bahari, Zakaria, 2015. "Sharia compliant gold investment in Malaysia: Hedge or safe haven?," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 192-204.
    7. Amendola, Alessandra & Braione, Manuela & Candila, Vincenzo & Storti, Giuseppe, 2020. "A Model Confidence Set approach to the combination of multivariate volatility forecasts," International Journal of Forecasting, Elsevier, vol. 36(3), pages 873-891.
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    Cited by:

    1. Andreas Renard Widarto & Harjum Muharam & Sugeng Wahyudi & Irene Rini Demi Pangestuti, 2022. "ASEAN-5 and Crypto Hedge Fund: Dynamic Portfolio Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.
    2. Hao Dong & Yingrong Zheng & Na Li, 2023. "Analysis of Systemic Risk Scenarios and Stabilization Effect of Monetary Policy under the COVID-19 Shock and Pharmaceutical Economic Recession," Sustainability, MDPI, vol. 15(1), pages 1-32, January.
    3. Susilo Nur Aji Cokro Darsono & Wing-Keung Wong & Tran Thai Ha Nguyen & Dyah Titis Kusuma Wardani, 2022. "The Economic Policy Uncertainty and Its Effect on Sustainable Investment: A Panel ARDL Approach," JRFM, MDPI, vol. 15(6), pages 1-17, June.

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