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Portfolio and hedging effectiveness of financial assets of the G7 countries

Author

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  • Selma Izadi

    () (Loyola University of New Orleans)

  • M. Kabir Hassan

    () (University of New Orleans)

Abstract

In this paper we investigate the dynamic conditional correlations between the equity and commodity returns for G7 countries from January, 2000 to October, 2014. The commodity futures include Brent, crude, gold, silver, wheat, corn and soybean futures, BCOM and CRB which are two aggregate commodity price indices. The results illustrate the lowest dynamic conditional correlations belong to the portfolios that include gold, wheat and corn futures for all the Equity indices. In addition, the correlations between the gold/equity pairs are negative during the financial crisis. This fact indicates the benefit of hedging stock portfolios with gold futures whenever we have stress in the financial markets. The findings from hedging effectiveness suggest that there are diversification advantages for all the commodity/stock portfolios than only stock portfolios. Finally, including CRB, BCOM and gold future to stock portfolios provides the optimal hedging effectiveness ratios. These findings can be helpful in developing new commodity indices.

Suggested Citation

  • Selma Izadi & M. Kabir Hassan, 2018. "Portfolio and hedging effectiveness of financial assets of the G7 countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 183-213, August.
  • Handle: RePEc:spr:eurase:v:8:y:2018:i:2:d:10.1007_s40822-017-0090-0
    DOI: 10.1007/s40822-017-0090-0
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    References listed on IDEAS

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    Cited by:

    1. Smales, Lee A., 2020. "Examining the relationship between policy uncertainty and market uncertainty across the G7," International Review of Financial Analysis, Elsevier, vol. 71(C).
    2. Christina Christou & Giray Gozgor & Rangan Gupta & Chi keung Marco Lau, 2020. "Are Uncertainties across the World Convergent?," Economics Bulletin, AccessEcon, vol. 40(1), pages 855-862.
    3. Dorothea Schäfer & Michael Stöckel & Henriette Weser, 2020. "Crisis Impact on the Diversity of Financial Portfolios - Evidence from European Citizens," Discussion Papers of DIW Berlin 1899, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

    GARCH-DCC; Stock markets; Future markets; Portfolio design; Hedging effectiveness;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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