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Chinese jigsaw: Solving the equity market response to the COVID-19 crisis: Do alternative asset provide effective hedging performance?

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  • Tarchella, Salma
  • Dhaoui, Abderrazak

Abstract

Against COVID-19 risks, this paper examines the hedging performance of alternative assets including some financial assets and commodities futures for the Chinese stock market in a multi-scale setting. Dynamic conditional correlations and optimal hedge ratios of the Shanghai stock exchange with Bitcoin, Dow Jones Industrial Average, Gold, WTI, Bonds and VIX returns are estimated before and during the pandemic crisis. In the short-term, the use of wavelet decomposition shows that Bitcoin provides the best hedge to the Shanghai stock market. In the long-term, commodities dominate. Whereas WTI offers the highest hedging effectiveness, Gold ranks second by a slight margin. These results allow investors to choose the highest returns and protecting tail risk during the current sanitary crisis. Our findings suggest particularly more pronounced economic benefit of diversification including alternative financial assets while commodities futures serve as good hedge assets especially during unpredictable crisis like the current sanitary crisis relating to the covid-19.

Suggested Citation

  • Tarchella, Salma & Dhaoui, Abderrazak, 2021. "Chinese jigsaw: Solving the equity market response to the COVID-19 crisis: Do alternative asset provide effective hedging performance?," Research in International Business and Finance, Elsevier, vol. 58(C).
    • Handle: RePEc:eee:riibaf:v:58:y:2021:i:c:s0275531921001203
    DOI: 10.1016/j.ribaf.2021.101499
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    Cited by:

    1. Metin Tetik & Ercan Özen, 2022. "Time-Varying Structure of the Optimal Hedge Ratio for Emerging Markets," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 69(4), pages 521-537, December.
    2. Soni, Rajat Kumar & Nandan, Tanuj, 2022. "Modeling Covid-19 contagious effect between asset markets and commodity futures in India," Resources Policy, Elsevier, vol. 79(C).
    3. Andreas Renard Widarto & Harjum Muharam & Sugeng Wahyudi & Irene Rini Demi Pangestuti, 2022. "ASEAN-5 and Crypto Hedge Fund: Dynamic Portfolio Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.
    4. Abid, Ilyes & Dhaoui, Abderrazak & Kaabia, Olfa & Tarchella, Salma, 2023. "Geopolitical risk on energy, agriculture, livestock, precious and industrial metals: New insights from a Markov Switching model," Resources Policy, Elsevier, vol. 85(PA).

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    More about this item

    Keywords

    COVID-19; Shanghai stock exchange; Wavelets; DJIA; Bitcoin; Commodities; Hedging effectiveness;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F30 - International Economics - - International Finance - - - General

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