Dynamic correlations and portfolio implications across stock and commodity markets before and during the COVID-19 era: A key role of gold.
Resour Policy
; 79: 102985, 2022 Dec.
Article
in English
| MEDLINE | ID: covidwho-2008088
ABSTRACT
Novel Coronavirus (COVID-19) has affected stock markets around the globe, adding serious challenges to asset allocations and hedging strategies. This investigation analyses the dynamic correlations and portfolio implications among the S&P 500 index and various commodities (gold, WTI crude oil, Brent oil, beverages, and wheat) before and during the COVID-19 era. Using multivariate asymmetric GARCH models, the results show weak correlations during the standard period. However, the correlations intensify and become more complicated during the COVID-19 era, especially between gold and S&P 500. Similarly, bidirectional return and volatility spillovers across stock-commodity markets are more pronounced during the COVID-19 outbreak. Analysis involving the optimal portfolio weights and time-varying hedge ratios indicates that a $1long position in the S&P 500 can be hedged for 15 cents in crude oil during the standard period and for 33 cents in gold during the COVID-19 era. A portfolio of S&P 500 - beverages displays the highest VaR, while a portfolio of S&P 500 - gold displays the lowest VaR, especially during the COVID-19 era. This finding suggests that gold offers better portfolio diversification benefits and downside risk reductions, which are useful in determining strategies for portfolio investors during the COVID-19 outbreak.
Full text:
Available
Collection:
International databases
Database:
MEDLINE
Type of study:
Prognostic study
Language:
English
Journal:
Resour Policy
Year:
2022
Document Type:
Article
Affiliation country:
J.resourpol.2022.102985
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