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1.
Finance Research Letters ; : 103632, 2023.
Article in English | ScienceDirect | ID: covidwho-2165305

ABSTRACT

One of the ultimate goals of the Green Economy is to move away from dependence on fossil energy, thereby achieving a sustainable development of a resource-saving and environment-friendly society. Thus, whether Green Economy stocks can hedge the risks of fossil energy markets, especially for natural gas market during recent crisis periods, is of great importance for both policy makers and portfolio managers. This paper identifies the time-varying connectedness and hedging effects of twelve NASDAQ OMX Green Economy sector stocks on NYMEX natural gas futures during three major turmoil events, i.e., European debt crisis, COVID-19 pandemic, and recent Russia-Ukraine conflict. The empirical results show that various Green Economy sector stocks can provide gratifying hedge effectiveness on the market risk of natural gas futures, and some of them can even perform similarly to gold and USD. Moreover, NASDAQ OMX Green Economy sector stocks offer better hedge effectiveness during recent Russia-Ukraine conflict than those of them in the periods of European debt crisis and COVID-19 pandemic. Finally, the Sharpe ratio results further show the important but time-varying roles of Green Economy sector stocks in hedging risks of natural gas market.

2.
Economic Analysis and Policy ; 2022.
Article in English | ScienceDirect | ID: covidwho-2165223

ABSTRACT

Using a two-step VAR asymmetric BEKK GARCH model, this research explores the asymmetric return and volatility connectedness between gold and several energy markets during three subperiods: pre-COVID, before vaccination, and after vaccination. Gold's returns and volatility spillover are generally found to be time- and energy-dependent. In addition, the optimal weights, hedge ratios, and hedging effectiveness of energy commodity and gold pairs are calculated during the three subperiods. The results of optimal weights show that investors should increase their investment in energy commodities more than gold (energy commodities) during the after-vaccination period (the pre-vaccination period). Moreover, the hedging strategy would only be effective within the COVID-19 vaccination period, which could have implications for the strategic asset allocation of policy-makers and international investors. Finally, we examine the potential determinants of conditional correlations between gold and energy markets. VIX, EPU, and new confirmed cases are found to be the main predictors of correlations for most energy commodity-gold pairs during the examined period.

3.
Resources Policy ; 80:103199, 2023.
Article in English | ScienceDirect | ID: covidwho-2165801

ABSTRACT

Using the wavelet TVP-VAR approach, this study looks at the static and dynamic connectedness between oil, gold, and global equity markets during several crises episodes, i.e., US subprime crisis of 2007, the global financial crisis of 2008–2009, European debt crisis of 2009–2012, oil crisis of 2014, China stock market crash 2015–16, and the Covid-19. The findings reveal that the connectedness among these markets varies across short vs. long run horizons and across various financial crisis episodes. The connectedness is observed to be high during the crisis's periods. We also perform the portfolio analysis for the pairs of oil, gold, and equity markets and find that gold and/or oil are useful for various equity markets for portfolio diversification and hedging in various market conditions and time horizons. We contend that the results will be valuable to investors, portfolio managers, and policy makers globally.

4.
China Finance Review International ; 2022.
Article in English | Web of Science | ID: covidwho-2161295

ABSTRACT

PurposeThis study analyses the impact of economic and trade policy uncertainty on US and Chinese stock markets. Also, this study examines the hedge and safe-haven properties of US and China stocks against both US and Chinese economic and trade policy uncertainty.Design/methodology/approachTo achieve the desired goals, the authors employ Dynamic Conditional Correlation through Glosten et al. (1993) model based on the Generalized Autoregressive Conditional Heteroscedasticity (DCC-GJR-GARCH (1, 1)) and Quantile cross-spectral (QS) models. The study uses monthly observations spanning from March 2010 to June 2022.FindingsThis study evidence that the economic and trade policy uncertainty between USA and China is extremely sensitive and has high volatility clustering effects on DJChina88 and DJUS, respectively. Conversely, against the Chinese economic and trade policy uncertainty, the US stock market indexes show both hedging properties across the period and safe-haven during COVID-19 and Russia-Ukraine crises. In contrast, among the Chinese stock markets, only DJShenzhen and DJShanghai stock indices might provide strong hedging and safe-haven properties against the US economic and trade policy uncertainties;however, DJShenzhen (DJChina88) stock shows weak hedge and safe-haven properties (hedging benefits) against Chinese trade policy uncertainty (CTPU) (Chinese economic policy uncertainty [CEPU]).Practical implicationsThe findings have significant implications for investors, portfolio managers and regulators in hedging and making proper decisions under uncertain circumstances.Originality/valueThe study extends the literature on stock market performance to cover the economic and trade policy uncertainty by providing novel evidence during the recent COVID-19 and Russia-Ukraine invasion.

5.
Finance Research Letters ; : 103595, 2022.
Article in English | ScienceDirect | ID: covidwho-2158852

ABSTRACT

We examine the return and volatility connectedness between travel & tourism tokens and other financial assets, including travel and tourism stocks, energy (WTI oil), cryptocurrency (bitcoin) and bonds, gold, the US dollar, using a generalized vector autoregressive framework. Findings show, in normal economic periods, only weak static spillovers between travel & tourism tokens and other assets. However, dynamic analysis reveals increased intensity of spillovers between travel & tourism tokens and other assets during COVID-19. Results are consistent with travel & tourism tokens offering diversification, including surprisingly to equity of the travel and tourism industry, during downturns that particularly impact tourism.

6.
International Journal of Finance & Economics ; 2022.
Article in English | Web of Science | ID: covidwho-2148333

ABSTRACT

In the context of the COVID-19's outbreak and its implications for the financial sector, this study analyses the aspect of hedging and safe-haven under the pandemic. Drawing on the daily data from 02 August 2019 to 17 April 2020, our key findings suggest that the contagious effects in financial assets' returns significantly increased under COVID-19, indicating exacerbated market risk. The connectedness spiked in the middle of March, consistent with lockdown timings in major economies. The effect became severe with the WHO's declaration of a pandemic, confirming negative news effects. The return connectedness suggests that COVID-19 has been a catalyst of contagious effects on the financial markets. The crude oil and the government bonds are however not as much affected by the spillovers as their endogenous innovation. In terms of spillovers, we do find the safe-haven function of Gold and Bitcoin. Comparatively, the safe-haven effectiveness of Bitcoin is unstable over the pandemic. Whereas, GOLD is the most promising hedge and safe-haven asset, as it remains robust during the current crisis of COVID-19 and thus exhibits superiority over Bitcoin and Tether. Our findings are useful for investors, portfolio managers and policymakers interested in spillovers and safe havens during the current pandemic.

7.
Resources Policy ; 80:103147, 2023.
Article in English | ScienceDirect | ID: covidwho-2132239

ABSTRACT

Risk and return are two fundamentals that have an impact on an investor’s or hedger’s investing choices. Based on the proposed synchronous movement intensity index, this paper aims to improve the hedging performance by adjusting the model-driven hedge ratio and realize the trade-off between return and risk in futures hedging. First, without loss of generality, we forecast crude oil spot and futures volatility using 10 GARCH-type models, including three linear models and seven nonlinear models, to obtain the ex-ante hedging ratio under the minimum variance framework. Then, we develop a novel and tractable method to identify the market state based on the index of consistency intensity, in which the index portrays the synchronous degree of stock price movements in the energy sector. Last but not least, we propose the hedge ratio adjustment criteria based on the identified state, and adjust the ratio driven by GARCH-type models of futures in accordance with the market state. Empirical results of crude oil futures markets indicate that the proposed state-dependent hedging model is superior to the commonly used models in terms of three criteria including mean of returns, variance, and ratio of mean to variance of returns for measuring hedging effect. We apply the DM test to make a statistical inference and discover that while the mean and the ratio of mean to variance of returns are increasing, the variance and hedging effectiveness of the hedged portfolio based on the modified methods are not significantly affected. Furthermore, the superiority of the proposed method is robust to different market conditions, including significant rising or falling trends, large basis, and COVID-19 pandemic. We also test the robustness of the proposed method with respect to the baseline model, quantile, and evaluation window. Overall, this paper provides a more realistic approach for crude oil risk managers to hedge crude oil price risk, some corresponding implications are also concluded.

8.
The North American Journal of Economics and Finance ; : 101844, 2022.
Article in English | ScienceDirect | ID: covidwho-2120470

ABSTRACT

The sudden market crash around 20 February 2020 on the dawn of the COVID-19 pandemic has accelerated the digitalization of all human communication and revived the interest for risk mitigation during stress periods. Interestingly, FAANA (Facebook, Apple, Amazon, Netflix, and Alphabet) stocks exhibited positive returns with remarkable resilience throughout the pandemic period, suggesting a change in their investing risk. In this paper, we take a different step from the existing literature and examine the hedging, diversifying, and safe haven properties of FAANA stocks against four alternative assets, namely gold, U.S. Treasury bonds, Bitcoin, and U.S. Dollar/CHF. Our analysis covers an extended sample period comprising the heightened uncertainty during the recent pandemic period. It involves conditional correlations, optimal weights, hedge ratios, and hedging effectiveness for the pairs of FAANA stock and alternative asset during the full sample period and the COVID-19 pandemic period. The results show that the majority of FAANA stocks serve as weak/strong safe havens against gold, Treasury bonds, Bitcoin, and Dollar/CHF in the full sample period. Further, few FAANA stocks serve as strong safe havens against the U.S. Treasury and Dollar/CHF during the pandemic. Our findings suggest that FAANA, once thought as risky high growth tech stocks, have gained maturity and became a safe blanket during the latest turbulent period.

9.
International Review of Financial Analysis ; : 102431, 2022.
Article in English | ScienceDirect | ID: covidwho-2119997

ABSTRACT

COVID pandemic has highlighted the importance of hedging against catastrophic events, for which the catastrophe bond market plays a critical role. Our paper develops a two-level modelling and uses a unique, hand-collected dataset, which is one of the largest and most detailed datasets to date containing: 101 different issuers, 794 different bonds, spanning 1997–2020. We identify issuer effects robustly, isolating them from bond specific pricing effects, therefore providing more credible pricing factor results. We find that bond pricing and volatility are heavily impacted by the issuer, causing 26% of total price variation. We also identify specific issuer characteristics that significantly impact bond pricing and volatility, such as the issuer’s line of business accounting for upto 36% of total price variation. We further find that issuer effects are significant over different market cycles and time periods, causing substantial price variation. The size and content of our data also enables us to identify the counter-intuitive relation between bond premiums and maturity, and bond premiums and hybrid bond triggers.

10.
Resour Policy ; : 103126, 2022 Nov 15.
Article in English | MEDLINE | ID: covidwho-2120340

ABSTRACT

This study examines the dynamic relationship between the gold price and the exchange rate in pre- and during Covid-19 pandemic in India. We consider the periods of about equal length for both the pre- and during Covid-19 by considering the data from January 1, 2019 till February 28, 2021. The descriptive analysis shows a significant increase in the dynamics of gold price and exchange rate after mid-March 2020. The results derived from the ARDL approach show a positive and significant relationship between the gold price and exchange rate both in the long and short run. We have selected the best fitted bivariate copula to study the joint distribution of the gold price and the exchange rate. Using the copula model, we examine the relationship between the gold price and exchange rate in a bivariate framework. We have studied the dependence between them including the tail dependencies using the fitted copula. Our findings reveal that the gold price and exchange rate are significantly correlated for the entire study period, and it also reveals that there is no tail dependence. However, the mutual association between the variables is not confirmed in the considered Covid-19 period.

11.
Sustainability Accounting, Management and Policy Journal ; 2022.
Article in English | Web of Science | ID: covidwho-2097582

ABSTRACT

Purpose The purpose of this study is to examine the dynamic connectedness and volatility spillovers between commodities and corporations exhibiting the best environmental, social and governance (ESG) practices. In addition, the authors determine the optimal hedge ratios and portfolio weights for ESG and commodity investors and portfolio managers. Design/methodology/approach This study uses the novel frequency connectedness framework to point out volatility spillover between ESG indices covering the USA, developed and emerging markets and commodity indices, including energy (crude oil, natural gas and heating oil), industrial metals (aluminum, copper, zinc, nickel and lead) and precious metals (gold and silver) by using daily data between January 3, 2011 and May 26, 2021, covering significant socio-economic developments and the COVID-19 outbreak. Findings The results of this study suggest a total connectedness index at a mediocre level, mainly driven by the shocks creating uncertainty in the short term. And the results indicate that all ESG indices are net volatility transmitters, and all commodity indices other than crude oil and copper are net volatility receivers. Practical implications The results imply statistically significant hedging and portfolio diversification opportunities to investors and portfolio managers across the asset classes, proven by the hedging effectiveness analyses. Social implications This study provides implications for policymakers focusing on the risk of contagion among the commodity and ESG markets during turbulent periods to ensure international financial stability. Originality/value This study contributes to the existing literature by differentiating ESG portfolios as the USA, developed and developing markets and examining dynamic connectedness and volatility spillovers between ESG portfolios and commodities with a different technique. This study also contributes by considering COVID-19 outbreak.

12.
The Quarterly Review of Economics and Finance ; 2022.
Article in English | ScienceDirect | ID: covidwho-2095931

ABSTRACT

Interest rate swap plays an essential role in the Chinese fixed-income market as a mainly hedging instrument. However, the market pricing anomaly of the near-zero swap spread violates the non-arbitrage assumption. Investigating the dynamics of pricing factors on interest rate swaps is meaningful to explain near-zero swap spreads. This paper employs a vector autoregressive model with time-varying parameters (TVP-VAR) model to examine the dynamic effects of pricing factors on swap spreads from a business cycle perspective. An analysis of the main three swaps with 1-year, 2-year, and 5-years maturities indicates that the TVP-VAR model accurately describes the time-varying features of the economic determinants. The TVP-VAR model has higher forecasting accuracy than the TVP model, particularly in the first-three months after the start of Covid-19 pandemic. The level, interest rate volatility (or economic policy uncertainty index), and stock market volatility as the proxies for hedging demands show opposite effects to the theoretical predictions. These effects are evident before 2010 (international financial crisis), during a short period in 2015 (stock market crashes), and after 2019 (Covid-19 pandemic). Thus, we provide different explanations of the effects of the hedging demand on near-zero swap spreads.

13.
Physica A ; 607: 128217, 2022 Dec 01.
Article in English | MEDLINE | ID: covidwho-2095890

ABSTRACT

In the current paper, we investigate the problem of how do crude oil futures hedge crude oil spot risk after the COVID-19 outbreak. Specifically, given that noise, conditional higher moments and asymmetric tail dependence may exist in crude oil markets, a Wavelet denoising-GARCHSK-SJC Copula hedge ratio estimation method is proposed to construct hedging portfolios in crude oil markets during the epidemic period. Based on the in-sample and out-of-sample results, the hedging roles of Brent futures and Shanghai crude oil (SC) futures for light and medium crude spots after the COVID-19 outbreak are further researched. The empirical results demonstrate that noise, conditional higher moments and asymmetric tail dependence do exist in crude futures and spots, which have impact on the precision of modeling results. Secondly, the Wavelet denoising-GARCHSK-SJC Copula hedge ratio estimation method outperforms all control groups, obtaining the best in-sample and out-of-sample hedging effectiveness. Finally, it is reported in the in-sample and out-of-sample hedging results that Brent is the optimal futures to hedge light oil, while SC is the optimal futures to hedge medium oil. The paper provides substantial recommendations for policymakers and investors.

14.
Journal of Decision Systems ; : 1-19, 2022.
Article in English | Web of Science | ID: covidwho-2082830

ABSTRACT

Given the broad scope of Ethereum and the wide range of its decentralized applications, this paper investigates its hedging and safe haven capabilities against main fiat currencies, stock and bond indices in the US and Europe, and crude oil and gold markets. We use daily data from January 2016 until February 2021 and apply percentile regressions and crisis event interaction analysis by selecting four worldwide events including US presidential elections, the Brexit referendum, and COVID-19. We reveal that Ethereum does not act as a hedge or a safe haven against fiat currencies, stock and bond indices, and gold. However, it does act as a strong safe haven against crude oil in calm and turbulent periods and against European bonds during market turbulence. The study provides insights to regulators and investors into the potential role of Ethereum in investment decision-making and protecting financial market participants in the US and EU.

15.
Sustainability ; 14(19):12864, 2022.
Article in English | ProQuest Central | ID: covidwho-2066471

ABSTRACT

The agricultural futures market plays an extremely important role in price discovery, hedging risks, integrating agricultural markets and promoting agricultural economic growth. China is the largest apple producer and consumer in the world. In 2017, Chinese apple futures were listed on the Zhengzhou Commodity Exchange (CZCE) as the first fruit futures contract globally. This paper aims to study the efficiency of the apple futures market by using the Wild Bootstrapping Variance Ratio model to estimate the price discovery function, the ARIMA-GARCH model to estimate the risk-hedging function, and the ARDL-ECM model to estimate the cointegration relationship of the futures and spot market. Experimental results firstly demonstrate that the apple futures market conforms to the weak-form efficiency, which indicates that it is efficient in price discovery. Secondly, the apple futures market is not of semi-strong efficiency because it generated abnormal profit margins amid China–US trade friction, climate disaster, and COVID-19;in terms of the degree of impact, the COVID-19 pandemic had the greatest impact, followed by the rainstorm disaster and trade friction. Thirdly, the results of this study indicate that the cointegration relationships exist between the futures market and the spot markets of the main producing areas. This paper is not only conducive to sustainable development of the global fresh or fruit futures market, but also has potential and practical importance for China in developing the agricultural futures market, strengthening market risk management and promoting market circulation.

16.
IUP Journal of Accounting Research & Audit Practices ; 21(3):61-76, 2022.
Article in English | ProQuest Central | ID: covidwho-2034399

ABSTRACT

In a free capital flow environment with greater volatility, the requirement for an optimum hedge ratio and its efficiency will be justified in order to create a successful hedging strategy. Hedge effectiveness in the Indian market has been tested using derivative contracts of Nifty futures and Bank Nifty futures as to how they help protect the spot market investments. The study has been divided into pre- and post-pandemic periods, from February 16, 2016, to March 23, 2020, and from March 24, 2020, to September 2021. The study emphasizes on Ordinary Least Square (OLS), Bivariate Vector Autoregressive Regression (BVAR), Vector Error Correction Model (VECM) and Multivariate Generalized Autoregressive Conditional Heteroscedasticity (M-GARCH) models to determine the effectiveness of hedging strategies. The models OLS, BVAR and VECM identified that the post-sample hedge effectiveness exhibits a higher reduction in variance than the pre-sample hedge effectiveness. According to the MGARCH results, the depicted hedge ratios are capable of reducing risk during both pre- and post-Covid-19 pandemic periods. This implies that the post-pandemic hedge effectiveness is superior to the prepandemic hedge effectiveness and both the future indices were able to lower a large amount of risk in the unhedged portfolio by a significant amount. Thus, it can be concluded that time shifting hedge ratios of post-pandemic period are capable of delivering hedging effectiveness in terms of variance reduction in the short run.

17.
Journal of Business Strategy Finance and Management ; 2(1-2):28-43, 2020.
Article in English | ProQuest Central | ID: covidwho-2025612

ABSTRACT

Purpose: The purpose of this paper is to find out the relationship between price of Gold, price of Crude Oil, Exchange Rate of India, and Indias stock market. The research has been done on Pre-COVID time periods to analyse the relationship in scenarios like pre-global financial crisis, during crisis and post crisis. The authors incorporate the data from pre-crisis phases i.e., 2005 to 2019, to find out the relationship between the variables using Granger causality test, Johansens Cointegration, and Vector Autoregression. To study the spill-over effect on Indias stock market, regression has been used. The empirical results indicate that for the Pre-Crisis and Post-Crisis periods, Gold does granger cause USDINR, for all three periods Crude oil does granger cause Gold, for the crisis and post crisis periods Gold does granger cause Crude oil, for the post-crisis period USDINR does granger cause Crude oil. No other causality relationship was established with the help of this empirical analysis. Johansens cointegration test revealed that no cointegration exists amongst the three variables. The impact of exchange rate on Indias stock market has changed as compared to the previous time periods. The exchange rate was inversely related to the stock markets for the Pre-Crisis and Crisis periods and is directly related to the stock market for the Post-Crisis period. This study adds to the existing literature on the variables, by using phase-wise data and performing empirical analysis to find out the relationship between the variables. Not many literatures demonstrate together the relationship among these three variables in three different periods. This is a significant gap that the study aimed to address.

18.
Mathematical Problems in Engineering ; 2022, 2022.
Article in English | ProQuest Central | ID: covidwho-2020552

ABSTRACT

The information flow between BRIC and relevant volatilities constitutes a complex network, which needs comprehensive analysis. We provide a rigorous investigation of information flow among stock markets of BRIC and the US VIX in a frequency-domain paradigm. Henceforward, the variation mode decomposition-based entropy approach is employed for the examination of diverse investment horizons and market conditions. First, we find that under stressed market conditions (lower quantiles), significant negative information flow exists between the BRIC constituents and the BRIC composite index. Also, under benign market conditions, we reveal similar dynamics as found at the lower quantiles, which enhances diversification. However, during market booms, we document more positive information flow between the assets and relevant to the redeployment of portfolios. Second, at low probability events representing market stress, we document potential negative information flow amid the stock markets and the US VIX for most investment horizons. Notwithstanding, the US VIX has the potential of transmitting positive information to the stock markets. However, at high market performance, we find more positive information flow amid the BRIC markets and VIX, generally implying long-term efficiency. Investors, portfolio managers, risk managers, and policy-makers should be wary of the heterogeneous and adaptive behaviour of BRIC stock markets with the VIX.

19.
Review of Behavioral Finance ; 14(4):465-490, 2022.
Article in English | ProQuest Central | ID: covidwho-2018569

ABSTRACT

Purpose>The paper provides new evidence for Bitcoin’s safe-haven property by examining the relationship between currency price, return and Bitcoin trading volume.Design/methodology/approach>A unique dataset from a person-to-person (p2p) exchange is used to investigate association between Bitcoin trading volume and currency prices. Currency returns are used to identify local economic crises, the 8 crisis affected currencies are Venezuela Bolivar (VES), Iranian Rial (IRR), Ukrainian Hryvnia (UAH), Argentine Peso (ARS), Egyptian Pound (EGP), Nigerian Naira (NGN), Turkish Lira (TRY) and Kazakhstani Tenge (KZT).Findings>The paper demonstrates that local economic crises are positively associated with increased Bitcoin trading. There is a negative association between trading volume and currency value (and return), suggesting low currency price and currency depreciation are accompanied with increased Bitcoin trading. The results not only hold for the crisis affected currencies but also currencies of advanced economies. Granger causality test also reinforces the negative association results.Originality/value>The finding indicates some forms of flight-to-safety have occurred during local market crises when capital flight from domestic markets to Bitcoin, strengthening Bitcoin’s hedging asset status. However, total global trading volume declines after the start of the COVID pandemic, suggesting that Bitcoin is still regarded as a speculative asset. Overall, the findings show that Bitcoin is a hedging asset to protect against local currency depreciation, but not a safe-haven asset for the global crisis.

20.
Finance India ; 36(2):819-834, 2022.
Article in English | Scopus | ID: covidwho-2012046

ABSTRACT

We examine intraday volatility spillover and interdependence between spot and futuresin different market conditions over two major events - covid-19 and 2008-09 global financial crisisand assess the evolution of hedging dynamics. Our findings indicate distinct differences and similarities in both the crises. During covid-19, we find evidence of increased symmetry in own-market volatility, decreased duration of bear phase and swift recovery to pre-crisis levels. In both 2008-09 crisis and covid-19 period, we findi) strong interconnectedness between spot and futures volatility spillover effect and the intensity varies widely across up and down trends ii) cross-marketvolatility spillover and correlation from futures to spot is relatively higherand provides stronger hedging opportunities during downtrends. The GARCH-BEKK findings demonstrate the importance of market condition-based time varying covariance estimations. © Indian Institute of Finance.

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