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Hedge effectiveness of put replication, gold, and oil on ASEAN-5 equities

Author

Listed:
  • Robiyanto Robiyanto

    () (Satya Wacana Christian University)

  • Bayu Adi Nugroho

    () (Perbanas Institute)

  • Eka Handriani

    () (Darul Ulum Islamic Centre Sudirman University GUPPI)

  • Andrian Dolfriandra Huruta

    () (Chung Yuan Christian University)

Abstract

The previous studies have shown that capital market integration has increased in the ASEAN-5, implying that investors making investment diversification across ASEAN capital markets could only earn limited diversification advantages. To diversify their portfolios, equity investors must find other assets. The main focus of this research is to analyze the effectiveness of put replication, gold, and oil on hedge equities in the ASEAN-5 (Indonesia, Malaysia, Singapore, Thailand, and the Philippines). Protective put strategy, DCC-GARCH, and Markowitz optimization are used to measure hedge effectiveness, risk-adjusted-performance such as Sharpe ratio, drawdown, and Omega ratio. The result reveals that gold is a cheaper hedge than oil and oil-hedged strategy is more expensive in ASEAN-5 compared to oil exporting nations. Also, investors with big exposure to the oil-related portfolio should diversify to Philippine equity. From hedging effectiveness and risk-adjusted-performance perspectives, oil is less attractive than money market instruments and gold. This study also implies that risk-averse investors should prefer to put replication or guaranteed financial products compared to commodities-hedged strategy.

Suggested Citation

  • Robiyanto Robiyanto & Bayu Adi Nugroho & Eka Handriani & Andrian Dolfriandra Huruta, 2020. "Hedge effectiveness of put replication, gold, and oil on ASEAN-5 equities," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 6(1), pages 1-29, December.
  • Handle: RePEc:spr:fininn:v:6:y:2020:i:1:d:10.1186_s40854-020-00199-w
    DOI: 10.1186/s40854-020-00199-w
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    More about this item

    Keywords

    DCC-GARCH; Gold; Oil; Minimum variance; Portfolio insurance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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