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Commodity market based hedging against stock market risk in times of financial crisis: The case of crude oil and gold

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  • Junttila, Juha
  • Pesonen, Juho
  • Raatikainen, Juhani

Abstract

Based on daily data from 1989 to 2016 we find that the correlations between gold and oil market futures and equity returns in the aggregate US market, and specifically in the energy sector stocks have changed strongly during the stock market crisis periods. The correlation between crude oil futures and aggregate US equities increases in crisis periods, whereas in case of gold futures the correlation becomes negative, which supports the safe haven hypothesis of gold. Also for the US energy sector equities our results support using gold futures for cross-hedging especially during the stock market crises.

Suggested Citation

  • Junttila, Juha & Pesonen, Juho & Raatikainen, Juhani, 2018. "Commodity market based hedging against stock market risk in times of financial crisis: The case of crude oil and gold," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 255-280.
    • Handle: RePEc:eee:intfin:v:56:y:2018:i:c:p:255-280
    DOI: 10.1016/j.intfin.2018.01.002
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    More about this item

    Keywords

    Crisis; Hedging; Commodity markets; Stock markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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