Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries

Maghyereh, A.I., Awartani, B. and Tziogkidis, P. 2017. Volatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries. Energy Economics. 68, pp. 440-453. https://doi.org/10.1016/j.eneco.2017.10.025

TitleVolatility spillovers and cross-hedging between gold, oil and equities: Evidence from the Gulf Cooperation Council countries
TypeJournal article
AuthorsMaghyereh, A.I., Awartani, B. and Tziogkidis, P.
Abstract

The paper examines the return and volatility spillovers between crude oil, gold and equities, and investigates the usefulness of the two commodities in hedging equity portfolios. Using daily data from January 20043 to May 2016 for the Gulf Cooperation Council countries, a DCC-GARCH model is used to estimate dynamic correlations and hedge ratios. We find significant spillovers from oil to equities, highlighting the heavy dependence of the local economies on oil. Moreover, the spillovers of gold on the stock markets are insignificant, suggesting that gold price fluctuations do not necessarily influence equity investment decisions. In the opposite direction, we find that equities do not exert significant influence on the two commodities, which we attribute to the relatively small capitalisation of the exchanges. Our results reveal low dynamic correlations and hedge ratios, with a few spikes during crises, indicating that oil and gold are cheap hedges for stocks, albeit not good ones, while they could be considered as weak safe havens, but at a considerable cost.

JournalEnergy Economics
Journal citation68, pp. 440-453
ISSN0140-9883
Year2017
PublisherElsevier
Accepted author manuscript
Digital Object Identifier (DOI)https://doi.org/10.1016/j.eneco.2017.10.025
Publication dates
Published online25 Oct 2015
Published25 Oct 2015
Published in printOct 2017
LicenseCC BY-NC-ND 4.0

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