In search of hedges and safe havens during the COVID-19 pandemic: Gold versus Bitcoin, oil, and oil uncertainty.

This paper investigates the potential hedging and safe-haven properties of several alternative investment assets, including gold, Bitcoin, oil, and the oil price volatility index (OVX), against the risks of the Saudi stock market and its constituent sectors in different phases of the COVID-19 pandemic. Using daily data, we employ the bivariate dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) technique to model volatilities and conditional correlations. Our findings show that all investigated alternative investment assets had a time-varying hedging role in the Saudi stock market, which became expensive during the early stages of the COVID-19 pandemic. Our results also show that the optimal weights for gold were substantially higher than those of other assets, reaching a peak during the pandemic, implying that investors consider gold a flight-to-safety asset. Additionally, we find that gold and OVX were strong hedges and could have served as weak safe havens for investors during the early stages of the COVID-19 pandemic, while the remaining assets generally lacked these properties and could be merely used as diversifiers. Our empirical findings offer several key implications for policymakers and portfolio managers in Saudi Arabia that may be applicable to similar markets. In particular, we show that OVX-based products can serve as a promising hedging asset for stock markets in oil-exporting countries.

Do volatility spillover and hedging among GCC stock markets and global factors vary from normal to turbulent periods? Evidence from the global financial crisis and Covid-19 pandemic crisis

In this paper, we use a bivariate VAR-asymmetric-BEKK-GARCH model to examine returns, asymmetric volatility spillovers, and time-varying correlations among GCC stock markets (Saudi Arabia, UAE, Qatar, Kuwait, Oman, and Bahrain) and five global factors (Islamic stocks, oil, gold, bonds, and real estate) from July 5, 2004, to March 31, 2021. To take into account the effects of the global financial crisis (GFC) and recent COVID-19 pandemic, we divide the sample period into four sub-periods: the full sample without COVID-19, pre-GFC, post-GFC, and the COVID-19 crisis. The empirical results indicate significant return and volatility spillovers between the GCC stock markets and global factors. Moreover, these spillovers between GCC stock markets and global factors increase in both the return and variance during turbulent periods (post-GFC and COVID-19 crisis periods). The time-varying correlations reveal that gold serves as a hedge and safe haven against most of the GCC stock markets in all sample periods, whereas the results vary across markets and sample periods for bonds, oil, Islamic stocks, and real estate assets against the GCC stocks. Our findings provide useful insights for investors and portfolio managers formulating trading strategies, determining asset allocation, and assembling optimal portfolios, since they persistently pursue challenging investment ideas and alternative asset classes, especially at times of financial crisis and global recession.