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Safe Haven or Hedge: Diversification Abilities of Asset Classes in Pakistan

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  • Imran, Zulfiqar Ali
  • Ahad, Muhammad

Abstract

This study compares the safe haven properties of asset classes of real estate (house, plot and residential), gold, dollar, and oil against equity returns in Pakistan for the period January 2011-December 2020. We employ the wavelet coherence to encapsulate the overall dependence and correlation of asset classes. Our results show the dependence is weaker (stronger) in short (long) term investment horizon. We also study the potential of diversification at the tail of returns distribution by applying wavelet value-at-risk (VaR) framework that reveals the degree of co-movement between gold and equity returns greatly affects the portfolio risk followed by residential property and oil. Our findings are beneficial for the individual investor, fund managers and financial advisors looking for the optimal portfolio combination that hedge the excessive negative movements in equity returns subject to the heterogeneity in the investment horizon.

Suggested Citation

  • Imran, Zulfiqar Ali & Ahad, Muhammad, 2021. "Safe Haven or Hedge: Diversification Abilities of Asset Classes in Pakistan," MPRA Paper 107613, University Library of Munich, Germany, revised 02 May 2021.
    • Handle: RePEc:pra:mprapa:107613
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    More about this item

    Keywords

    Equity; Real Estate; Oil; Gold; US Dollar; Diversification; Pakistan.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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