Abstract
This paper assesses the impact of gold and oil price fluctuations on the volatility of the South African stock market and its component indices or sectors – namely, the financial, industrial and resource sectors – to infer the link between the commodity and stock markets in South Africa. Use is made of the vector autoregressive asymmetric dynamic conditional correlation generalised autoregressive conditional heteroskedasticity (VAR-ADCC-GARCH) model to this end. Moreover, the paper assesses the magnitude of the optimal portfolio weight, hedge ratio and hedge effectiveness for portfolios constituted of a pair of assets, namely oil-stock and gold-stock pairs. The findings of the study show that there is significant volatility spillover between the gold and stock markets, and the oil and stock markets. This finding suggests the importance of the link between the commodity and stock markets, which is essential for portfolio management. With reference to portfolio optimization and the possibility of hedging when using the pairs of assets under study, the findings suggest the importance of combining gold and stocks as the best strategy to hedge against stocks risk, especially during financial crises.
Original language | English |
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Article number | 101740 |
Journal | Resources Policy |
Volume | 68 |
DOIs | |
Publication status | Published - Oct 2020 |
Keywords
- ADCC model
- Asymmetric
- Crises
- Hedge effectiveness
- Hedge ratio
- Optimal portfolio weight
- Risk
- Safe haven
ASJC Scopus subject areas
- Sociology and Political Science
- Economics and Econometrics
- Management, Monitoring, Policy and Law
- Law