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Reinvestigating the role of oil and gold for portfolio optimization in view of COVID-19 and structural breaks: Empirical evidence of BEKK, DCC and wavelet quantile based estimations

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  • Aziz, Ghazala
  • Sarwar, Suleman
  • Yuan, Qiong
  • Waheed, Rida
  • Morales, Lucía

Abstract

The purpose of current study is to reinvestigate the role of oil and gold to hedge the Pakistani stocks. In contrast to previous studies, we have used long span of data and divided it according to structural breaks and COVID-19, for optimal portfolio formation which can hedge the investors risk. Both oil and gold are useful commodity to hedge the risk. In the case of post COVID-19, the significance of gold is higher to optimize the portfolio risk. According to wavelet quantile correlation, Karachi stocks and oil have an optimal combination for short-term and medium-term in case of bearish and normal market condition. In bullish market conditions, the higher proportion of gold is useful to minimize the portfolio risk. However, according to hedging effectiveness, the role of gold is much higher to minimize the portfolio risk. In concise, gold is considered as a strong hedge to minimize the investors risk in Pakistani stock exchange. On the basis of estimations, we recommend that investors, in Karachi stock exchange, have to diversify their investments to form hedged portfolio.

Suggested Citation

  • Aziz, Ghazala & Sarwar, Suleman & Yuan, Qiong & Waheed, Rida & Morales, Lucía, 2024. "Reinvestigating the role of oil and gold for portfolio optimization in view of COVID-19 and structural breaks: Empirical evidence of BEKK, DCC and wavelet quantile based estimations," Resources Policy, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:jrpoli:v:92:y:2024:i:c:s0301420724003246
    DOI: 10.1016/j.resourpol.2024.104957
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    Keywords

    Wavelet quantile; Karachi stock exchange; COVID-19; Gold; Hedging effectiveness;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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