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Analyzing time–frequency co-movements across gold and oil prices with BRICS stock markets: A VaR based on wavelet approach

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  • Mensi, Walid
  • Hkiri, Besma
  • Al-Yahyaee, Khamis H.
  • Kang, Sang Hoon

Abstract

This paper examines the co-movements between five of the most important emerging stock markets namely the BRICS (Brazil, Russia, India, China and South Africa) and both the crude oil prices [West Texas Intermediate (WTI) and Europe Brent] and gold prices which are relevant to those commodity exporters and voracious consumers. Our results based on the wavelet approach show that BRICS index returns co-move with the WTI crude oil price at low frequencies (long horizons). Moreover, the strong level of co-movement is particularly captured during the onset of the global financial crisis. On the other hand, we find no evidence of co-movement between the BRICS stock markets and the gold price, indicating that gold can act as a hedge or a safe haven asset for the BRICS against extreme market movements. The implications of these results for the BRICS-commodity portfolios show that the portfolio risk (measured by the Value at Risk) is affected by the co-movements between stock and oil markets.

Suggested Citation

  • Mensi, Walid & Hkiri, Besma & Al-Yahyaee, Khamis H. & Kang, Sang Hoon, 2018. "Analyzing time–frequency co-movements across gold and oil prices with BRICS stock markets: A VaR based on wavelet approach," International Review of Economics & Finance, Elsevier, vol. 54(C), pages 74-102.
  • Handle: RePEc:eee:reveco:v:54:y:2018:i:c:p:74-102
    DOI: 10.1016/j.iref.2017.07.032
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    References listed on IDEAS

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    1. repec:gam:jeners:v:12:y:2019:i:11:p:2226-:d:238956 is not listed on IDEAS
    2. repec:eee:eneeco:v:76:y:2018:i:c:p:584-593 is not listed on IDEAS

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    Keywords

    BRICS; Commodity prices; Co-movement; Wavelet; Value at risk;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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