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Do commodities effectively hedge real estate risk? A multi-scale asymmetric DCC approach

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  • Raza, Naveed
  • Ali, Sajid
  • Shahzad, Syed Jawad Hussain
  • Raza, Syed Ali

Abstract

We examine the hedging performance of commodities futures for US real estate portfolios in a multi-scale setting. Dynamic asymmetric conditional correlations and thereafter optimal hedge ratios of real estate stock returns with commodities index, gold, oil and bond returns are estimated to examine hedge effectiveness under heterogeneous market expectations. Rolling window based out-of-sample one-step-ahead forecasts show that commodities index (gold) provide the best hedge to US real estate stocks for short-term (long-term) investments. The results are robust to the choice of model refits and rolling window sizes and provide useful implications for alternate markets’ investors.

Suggested Citation

  • Raza, Naveed & Ali, Sajid & Shahzad, Syed Jawad Hussain & Raza, Syed Ali, 2018. "Do commodities effectively hedge real estate risk? A multi-scale asymmetric DCC approach," Resources Policy, Elsevier, vol. 57(C), pages 10-29.
  • Handle: RePEc:eee:jrpoli:v:57:y:2018:i:c:p:10-29
    DOI: 10.1016/j.resourpol.2018.01.001
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    1. repec:eee:jrpoli:v:62:y:2019:i:c:p:33-56 is not listed on IDEAS
    2. Aviral Kumar Tiwari & Goodness C. Aye & Rangan Gupta & Konstantinos Gkillas, 2019. "Gold-Oil Dependence Dynamics and the Role of Geopolitical Risks: Evidence from a Markov-Switching Time-Varying Copula Model," Working Papers 201918, University of Pretoria, Department of Economics.
    3. Afees A. Salisu & Wasiu Adekunle & Zachariah Emmanuel & Wasiu A. Alimi, 2018. "Predicting exchange rate with commodity prices: The role of structural breaks and asymmetries," Working Papers 055, Centre for Econometric and Allied Research, University of Ibadan.
    4. repec:kap:rqfnac:v:52:y:2019:i:3:d:10.1007_s11156-018-0730-9 is not listed on IDEAS

    More about this item

    Keywords

    Commodities; Gold; Real estate; ADCC; Hedge ratios;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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