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Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries

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  • Maghyereh, Aktham I.
  • Awartani, Basel
  • Tziogkidis, Panagiotis

Abstract

The paper examines the return and volatility spillovers between crude oil, gold and equities, and investigates the usefulness of the two commodities in hedging equity portfolios. Using daily data from January 2004 to May 2016 for the Gulf Cooperation Council countries, a DCC-GARCH model is used to estimate dynamic correlations and hedge ratios. We find significant spillovers from oil to equities, highlighting the heavy dependence of the local economies on oil. Moreover, the spillovers of gold on the stock markets are insignificant, suggesting that gold price fluctuations do not necessarily influence equity investment decisions. In the opposite direction, we find that equities do not exert significant influence on the two commodities, which we attribute to the relatively small capitalisation of the exchanges. Our results reveal low dynamic correlations and hedge ratios, with a few spikes during crises, indicating that oil and gold are cheap hedges for stocks, albeit not good ones, while they could be considered as weak safe havens, but at a considerable cost.

Suggested Citation

  • Maghyereh, Aktham I. & Awartani, Basel & Tziogkidis, Panagiotis, 2017. "Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries," Energy Economics, Elsevier, vol. 68(C), pages 440-453.
  • Handle: RePEc:eee:eneeco:v:68:y:2017:i:c:p:440-453
    DOI: 10.1016/j.eneco.2017.10.025
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    More about this item

    Keywords

    Crude oil; Gold; Spillovers; Hedging; Dynamic correlation; Gulf Cooperation Council; Portfolio;
    All these keywords.

    JEL classification:

    • 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
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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