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Portfolio and hedging effectiveness of financial assets of the G7 countries

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  • Selma Izadi

    (Loyola University of New Orleans)

  • M. Kabir Hassan

    (University of New Orleans)

Abstract

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.

Suggested Citation

  • Selma Izadi & M. Kabir Hassan, 2018. "Portfolio and hedging effectiveness of financial assets of the G7 countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 183-213, August.
    • Handle: RePEc:spr:eurase:v:8:y:2018:i:2:d:10.1007_s40822-017-0090-0
    DOI: 10.1007/s40822-017-0090-0
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    Cited by:

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    2. Wang, Yu-Min & Lin, Che-Chun & Tsai, I-Chun, 2023. "State transformation of information spillover in asset markets and effective dynamic hedging strategies," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Walid Chkili, 2022. "The links between gold, oil prices and Islamic stock markets in a regime switching environment," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 169-186, March.
    4. Christina Christou & Giray Gozgor & Rangan Gupta & Chi keung Marco Lau, 2020. "Are Uncertainties across the World Convergent?," Economics Bulletin, AccessEcon, vol. 40(1), pages 855-862.
    5. Dorothea Schäfer & Michael Stöckel & Henriette Weser, 2020. "Crisis Impact on the Diversity of Financial Portfolios: Evidence from European Citizens," Discussion Papers of DIW Berlin 1899, DIW Berlin, German Institute for Economic Research.
    6. Xu, Lei & Kinkyo, Takuji, 2023. "Hedging effectiveness of bitcoin and gold: Evidence from G7 stock markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    7. Karamti, Chiraz & Jeribi, Ahmed, 2023. "Stock markets from COVID-19 to the Russia–Ukraine crisis: Structural breaks in interactive effects panels," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    8. Schäfer, Dorothea & Stephan, Andreas & Weser, Henriette, 2023. "Crisis stress for the diversity of financial portfolios — evidence from European households," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 330-347.
    9. Daehyeon Park & Jiyeon Park & Doojin Ryu, 2020. "Volatility Spillovers between Equity and Green Bond Markets," Sustainability, MDPI, vol. 12(9), pages 1-12, May.

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    More about this item

    Keywords

    GARCH-DCC; Stock markets; Future markets; Portfolio design; Hedging effectiveness;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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