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Spillovers and hedging between US equity sectors and gold, oil, islamic stocks and implied volatilities

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  • Kang, Sang Hoon
  • Arreola Hernandez, Jose
  • Rehman, Mobeen Ur
  • Shahzad, Syed Jawad Hussain
  • Yoon, Seong-Min

Abstract

We investigate the spillovers and hedging between US equity sector returns and oil, gold, Islamic stocks, and the implied volatilities of oil (OVX) and US stock market (VIX) based on spillover indexes and portfolio hedging methods. The spillover results indicate that the 30-day forward-looking market expectations of VIX most strongly influence all 10 US equity sectors’ returns. The healthcare and information technology (real estate and utilities) sectors are the most (least) affected by VIX. The US Islamic market index is the highest spillover transmitter (receiver) to (from) US sectoral returns compared to gold, oil, and OVX. The highest transmitters to and receivers of spillover from all other sectors are the industrial, consumer discretionary, and basic materials sectors. The real estate and utilities are mainly net spillover receiver sectors. Finally, the portfolio hedging results show that gold, oil, and US Islamic stocks most effectively hedge the risk of the real estate equity sector. Gold also emerges as the most effective hedge for the financial sector.

Suggested Citation

  • Kang, Sang Hoon & Arreola Hernandez, Jose & Rehman, Mobeen Ur & Shahzad, Syed Jawad Hussain & Yoon, Seong-Min, 2023. "Spillovers and hedging between US equity sectors and gold, oil, islamic stocks and implied volatilities," Resources Policy, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:jrpoli:v:81:y:2023:i:c:s0301420722007292
    DOI: 10.1016/j.resourpol.2022.103286
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    Keywords

    US equity Sectors; Spillover; Hedging; Commodities; Stock market; Implied volatility;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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