ERF 27th Annual Conference
Hedging the Risks of MENA Stock Markets with Gold: Evidence from the Spectral Approach
No.
ERF27_
Publisher
ERF
Date
May, 2021
Topic
C6. Mathematical Methods
C1. Econometric and Statistical Methods and Methodology
G1. General Financial Markets
In this paper, we contribute to the old debate on the dynamic correlation between gold and stock markets by considering a spectral approach within the framework of portfolio hedging. Specifically, we consider eight MENA stock markets (Tunisia, Egypt, Morocco, Jordan, UAE, Saudi Arabia, Qatar, and Oman) and examine the optimal composition between gold and the stock market index, with a minimum portfolio risk and a high expected return. Based on the spectral approach, we propose seven portfolio structures and evaluate them through a comparison with the conventional DCC-GARCH method. The main results show that the spectral-based approach outperforms the DCC-GARCH method. In fact, the optimal gold-stock composition depends on the spectral density of each stock market index, where a stock market index with a stable spectral density requires more investments in gold than a stock market index with an unstable spectral density.
Authors
Awatef Ourir
University of Jendouba
Authors
Elie Bouri
Associate Professor of Finance, School of Business...
Research Fellows
Essahbi Essaadi
Assistant Professor, University of Manouba, Tunisia