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

Author

Listed:
  • Awatef Ourir

    (University of Jendouba)

  • Elie Bouri

    (Lebanese American University)

  • Essahbi Essaadi

    (University of Manouba)

Abstract

This paper contributes 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, the United Arab Emirates, 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. The main results show that the spectral-based approach outperforms the DCC-GARCH method. 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.

Suggested Citation

  • Awatef Ourir & Elie Bouri & Essahbi Essaadi, 2021. "Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach," Working Papers 1511, Economic Research Forum, revised 20 Nov 2021.
    • Handle: RePEc:erg:wpaper:1511
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    References listed on IDEAS

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    Cited by:

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    2. Raggad, Bechir & Bouri, Elie, 2023. "Gold and crude oil: A time-varying causality across various market conditions," Resources Policy, Elsevier, vol. 86(PA).
    3. Mei-jun, Ling & Guang-xi, Cao, 2024. "Dynamics of asymmetric multifractal cross-correlations between cryptocurrencies and global stock markets: Role of gold and portfolio implications," Chaos, Solitons & Fractals, Elsevier, vol. 182(C).

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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