Emerging Equity Markets Connectedness, Portfolio Hedging Strategies and Effectiveness

Harrathi, Nizar; Aloui, Chaker; Houfi, Mohamed Ali; Majdoub, Jihed

doi:10.5430/ijfr.v7n2p189

Cited by 4 publications

(2 citation statements)

References 43 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Different risk and downside risk measures are applied to compare the performance of optimal portfolios following Reboredo (2013), Hammoudeh et al (2014), Chkili (2016) and Harrathi et al (2016).…”

Section: Risk and Downside Risk Measuresmentioning

confidence: 99%

Dynamic Linkages among Stocks and Commodities: A Switching Copula Approach

Abbasi¹,

Raza²

2022

J. manag. pract. humanit I am. sci

View full text Add to dashboard Cite

The 􀅫luctuating behavior of 􀅫inancial markets has signi􀅫icant impact on economic variables. A relatively new modeling technique, "switching dependence copula" is employed to characterize conditional dependence among stock indices (Islamic/conventional stocks) and commodities. As the dependence may switch in between negative and positive correlation regimes with the passage of time where the copula captures dependence structure more conveniently and portrays pictures most relevantly then a single copula regime. The sample period ranges from 2011 to 2021. All the data sourced from Thomson Reuters. Overall, the results are in favor of commodities phenomenon of providing better hedging and diversi􀅫ication bene􀅫it to stock indices. Fluctuating behavior is observed for Islamic stocks and commodities pairs. According to the results, commodities are suitable as cousin during crisis period, especially during negative correlation regime; commodities perform better, providing hedging and diversi􀅫ication bene􀅫its.

show abstract

Section: Risk and Downside Risk Measuresmentioning

confidence: 99%

Dynamic Linkages among Stocks and Commodities: A Switching Copula Approach

Abbasi¹,

Raza²

2022

J. manag. pract. humanit I am. sci

View full text Add to dashboard Cite

show abstract

“…Hedging is increasingly gaining relevance in the literature. So, there have been many research studies that evaluate markets based on hedging strategies (Kroner and Sultan, 1993;Ku et al, 2007;Pan et al, 2014;Harrathi et al, 2016;Yousaf and Ali, 2020;Qiao et al, 2020;Qureshi et al, 2020). One of the most commonly used hedging strategies is based on portfolio variance minimization, the so-called minimum variance hedge ratio (Chen and Hoshower, 2003;Lien and Tse, 2002;Trichilli et al, 2018Trichilli et al, , 2019.…”

Section: Emjb 192 338mentioning

confidence: 99%

Impact of the confirmation bias on returns, expectations and hedging of optimistic and pessimistic traders before and during COVID-19 pandemic

Trichilli

Gaadane

Abbes

et al. 2022

EMJB

View full text Add to dashboard Cite

PurposeIn this paper, the authors investigate the impact of the confirmation bias on returns, expectations and hedging of optimistic and pessimistic traders in the cryptocurrencies, commodities and stock markets before and during COVID-19 periods.Design/methodology/approachThe authors investigate the impact of the confirmation bias on the estimated returns and the expectations of optimistic and pessimistic traders by employing the financial stochastic model with confirmation bias. Indeed, the authors compute the optimal portfolio weights, the optimal hedge ratios and the hedging effectiveness.FindingsThe authors find that without confirmation bias, during the two sub periods, the expectations of optimistic and pessimistic trader’s seem to convergence toward zero. However, when confirmation bias is particularly strong, the average distance between these two expectations are farer. The authors further show that, with and without confirmation bias, the optimal weights (the optimal hedge ratios) are found to be lower (higher) for all pairs of financial market during the COVID-19 period as compared to the pre-COVID-19 period. The authors also document that the stronger the confirmation bias is, the lower the optimal weight and the higher the optimal hedge ratio. Moreover, results reveal that the values of the optimal hedge ratio for optimistic and pessimistic traders affected or not by the confirmation bias are higher during the COVID-19 period compared to the estimates for the pre-COVID period and inversely for the optimal hedge ratios and the hedging effectiveness index. Indeed, either for optimists or pessimists, the presence of confirmation bias leads to higher optimal hedge ratio, higher optimal weights and higher hedging effectiveness index.Practical implicationsThe findings of the study provided additional evidence for investors, portfolio managers and financial analysts to exploit confirmation bias to make an optimal portfolio allocation especially during COVID-19 and non-COVID-19 periods. Moreover, the findings of this study might be useful for investors as they help them to make successful investment decision in potential hedging strategies.Originality/valueFirst, this is the first scientific work that conducts a stochastic analysis about the impact of emotional biases on the estimated returns and the expectations of optimists and pessimists in cryptocurrency and commodity markets. Second, the originality of this study stems from the fact that the authors make a comparative analysis of hedging behavior across different markets and different periods with and without the impact of confirmation bias. Third, this paper pays attention to the impact of confirmation bias on the expectations and hedging behavior in cryptocurrencies and commodities markets in extremely stressful periods such as the recent COVID-19 pandemic.

show abstract