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Downside risk in Dow Jones equity markets: hedging and portfolio management during COVID-19 pandemic and the Russia–Ukraine war.
- Source :
- Journal of Risk Finance (Emerald Group Publishing Limited); 2024, Vol. 25 Issue 3, p443-470, 28p
- Publication Year :
- 2024
-
Abstract
- Purpose: This paper aims to examine the dynamic conditional correlation (DCC) and hedging ratios between Dow Jones markets and oil, gold and bitcoin. Using daily data, including the COVID-19 pandemic and the Russia–Ukraine war. We employ the DCC-generalized autoregressive conditional heteroskedasticity (GARCH) and asymmetric DCC (ADCC)-GARCH models. Design/methodology/approach: DCC-GARCH and ADCC-GARCH models. Findings: The most of DCCs among market pairs are positive during COVID-19 period, implying the existence of volatility spillovers (Contagion-effects). This implies the lack of additional economic gains of diversification. So, COVID-19 represents a systematic risk that resists diversification. However, during the Russia–Ukraine war the DCCs are negative for most pairs that include Oil and Gold, implying investors may benefit from portfolio-diversification. Our hedging analysis carries significant implications for investors seeking higher returns while hedging their Dow Jones portfolios: keeping their portfolios unhedged is better than hedging them. This is because Islamic stocks have the ability to mitigate risks. Originality/value: Our paper may make a valuable contribution to the existing literature by examining the hedging of financial assets, including both conventional and Islamic assets, during periods of stability and crisis, such as the COVID-19 pandemic and the Russia–Ukraine war. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 15265943
- Volume :
- 25
- Issue :
- 3
- Database :
- Complementary Index
- Journal :
- Journal of Risk Finance (Emerald Group Publishing Limited)
- Publication Type :
- Academic Journal
- Accession number :
- 176874012
- Full Text :
- https://doi.org/10.1108/JRF-07-2023-0157