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Searching for hedging and safe haven assets for Indian equity market – a comparison between gold, cryptocurrency and commodities

Author

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  • Sayantan Bandhu Majumder

Abstract

Purpose - This paper aims to evaluate the hedging and safe haven properties of gold, cryptocurrency and commodities against the Indian equity market. Design/methodology/approach - First, the authors estimate the hedging and safe haven abilities of gold, cryptocurrency and commodities for the Indian stock market and further verify whether such properties vary across the broad stock market indices and over the different degrees of market volatility. Second, the authors use the multivariate GARCH framework to calculate the dynamic hedge ratios and hedging efficiencies to compare the hedging properties of the alternative asset classes. Third, the authors verify the robustness of the general findings during the recent crisis emanating from the outbreak of the COVID-19 pandemic. Findings - Gold, cryptocurrency and most commodities have significant hedging abilities. Only natural gas, crude oil and aluminum, on the other hand, have safe haven property. Neither gold nor cryptocurrency qualifies as a safe haven asset. On the other hand, the financialization of the Indian commodities market provides a significant dividend to investors in terms of hedging and safe haven capabilities. The authors find the least negative hedge ratio and the highest positive hedging effectiveness for the stock-crude oil and stock-natural gas portfolios. The central observations of the paper remain immune to the COVID crisis. Originality/value - Focusing on the Indian equity market, the paper compares the diversification abilities of traditional assets like gold with those of the modern class of assets, including cryptocurrency and other commodities.

Suggested Citation

  • Sayantan Bandhu Majumder, 2022. "Searching for hedging and safe haven assets for Indian equity market – a comparison between gold, cryptocurrency and commodities," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 15(1), pages 60-84, January.
  • Handle: RePEc:eme:igdrpp:igdr-10-2021-0131
    DOI: 10.1108/IGDR-10-2021-0131
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    Citations

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    Cited by:

    1. R. Rajesh & A. Satya Nandini, 2023. "Hedging Efficiency of Energy Commodities between Indian and American Commodity Exchanges: Constant and Time-Varying Approaches," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 537-546, November.
    2. V. Anandhabalaji & Manivannan Babu & J. Gayathri & J. Sathya & G. Indhumathi & R. Brintha & Justin Nelson Michael, 2023. "Examining the Volatility of Conventional Cryptocurrencies and Sustainable Cryptocurrency during Covid-19: Based on Energy Consumption," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 344-352, November.
    3. Lu, Ran & Xu, Wen & Zeng, Hongjun & Zhou, Xiangjing, 2023. "Volatility connectedness among the Indian equity and major commodity markets under the COVID-19 scenario," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1465-1481.

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