Hedging oil price risk with gold during COVID-19 pandemic

Salisu, Afees A.; Vo, Xuan Vinh; Lawal, Adedoyin Isola

doi:10.1016/j.resourpol.2020.101897

Cited by 156 publications

(106 citation statements)

References 79 publications

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“…Furthermore, the study of [12] stated that COVID-19 has a significant impact on energy markets, i.e., crude oil and S&P GS Indexes. The study of [13] stated that gold is a substantial safe haven against oil prices. Moreover, [14] stated that COVID-19 cases and oil prices changes directly affect the Asian stock markets.…”

Section: Introductionmentioning

confidence: 99%

Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

et al. 2021

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COVID-19 has significantly affected the financial and commodity markets. The purpose of this investigation is to understand the impact of the COVID-19 crisis on Dow Jones and West Texas Intermediate (WTI) oil returns in relation to other crises using the Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. The results indicate that COVID-19 and the accompanying lockdown have adversely impacted both yields and that the impact on oil prices is more significant than on the Dow Jones index. The variance and squared residuals of oil prices and the Dow Jones reached their highest historical levels during the COVID-19 outbreak, even higher than during the global financial crisis, and especially the VaR of both markets reached their historical peak points during the COVID-19 era. The variance of WTI during COVID-19 is higher than that of DJI, as was also the case during the financial crisis. These findings confirm that COVID-19 has negatively impacted investors’ ability to determine optimal portfolios and thus the sustainability of financial and energy markets more than the global financial crisis of 2007–2009. We, therefore, suggest that policy changes are needed to maintain financial sustainability and help investors deal with future financial and other crises.

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Section: Introductionmentioning

confidence: 99%

Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

et al. 2021

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“…This study employs the GARCH-based VARMA model proposed by Ling and McAleer ( 2003 ). The VARMA-GARCH models were featured as prominent instruments used in empirical literature for modeling interdependencies among financial time series with or without asymmetric shock effects (see Salisu and Mobolaji 2013 ; Salisu and Oloko 2015b ; Al-Maadid et al 2017 ; Salisu et al 2020a , b ). However, the choice of appropriate variants, that is, between constant conditional correlations (CCC) or its dynamic variant DCC, and between symmetric and asymmetric effects, is determined based on the outcomes of certain formal pretests.…”

Section: Methodsmentioning

confidence: 99%

“…Although the motivation to hedge oil market risks is justified by studies suggesting the search for alternative hedging options for oil market risks (see Selmi et al 2018 ; Olson et al 2019 ; Sharma and Rodriguez 2019 ; Okorie and Lin 2020 ), the pandemic period offers yet greater motivation in this regard. This is because the crisis affecting the market becomes heightened with other markets (e.g., equities and currencies) that could be available to investors for diversification, which have also been impacted adversely by the pandemic(see Gil-Alana and Claudio-Quiroga 2020 ; Salisu et al 2020a , b ; Sharma 2020 ; Iyke 2020b ; Narayan 2020b , c ; Narayan et al 2020 ). 1…”

Section: Introductionmentioning

confidence: 99%

“…We employ the vector autoregressive moving average of the generalized autoregressive conditional heteroscedastic family (VARMA-GARCH) as the underlying model for the hedging relationship between oil price and non-energy financial innovations. This modeling framework becomes relevant after rounds of preliminary data testing including the graphical analysis showing largely negative co-movements between the variables and tests for serial correlation, conditional heteroscedasticity, sign-bias, and asymmetry, which all indicate the need to capture ARCH effects, asymmetry, and possible time-variation in the model (see also, Arouri and Nguyen 2010 ; Arouri et al 2011a , b ; Arouri et al 2011a , b ; Salisu and Mobolaji 2013 ; Salisu and Oloko 2015a ; Salisu et al 2020a , b , among others). In addition, the technique employed for the analysis tends to offer superior forecast performance relative to other competing models such as vector autoregressive (VAR-based) models and its variants (see Lypny and Powalla 1998 ; Lee et al 2005 ; Yang and Lai 2009 ) in the modeling financial series with the foregoing statistical features thrown up at the pre-estimation stage.…”

Section: Introductionmentioning

confidence: 99%

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COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Salisu

Obiora²

2021

Financ Innov

Self Cite

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This study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

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“…From the perspective of underlying assets, bonds and gold that were considered to be able to hedge risks were sold on a large scale without discrimination during the epidemic. As a result, bond yields fell sharply, with gold prices continuing to rise [ 31 , 32 , 33 ]. As for oil, the epidemic directly affects oil demand and has a greater impact on related industries.…”

Section: Impact Assessmentmentioning

confidence: 99%

The Progression of COVID-19 and the Government Response in China

Flahault

Temerev

et al. 2021

IJERPH

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The ongoing pandemic of COVID-19 (Coronavirus Infectious Disease-2019) was first reported at the end of 2019 in Wuhan, China. On 30 January 2020, the WHO declared a Public Health Emergency for the novel coronavirus. On 11 March 2020, the WHO officially declared the COVID-19 outbreak as a pandemic. Due to the differences in population distribution, economic structure, degree of damage and other factors, the affected countries have introduced policies tailored to local conditions as a response to the pandemic, leading to different economic and social impacts. Considering the highly heterogeneous spreading of COVID-19 across regions, this paper takes a specific country (China) as a case study of the spread of the disease and national intervention models for the COVID-19 pandemic. The research period of this article is from 17 December to 26 April 2020, because this time period basically covered the important time nodes of the epidemic in China from animal-to-human transmission, limited human-to-human transmission, epidemic to gradual control. This study is useful for comparing the effectiveness of different interventions at various stages of epidemic development within the same country and can also promote the comparison of the epidemic response interventions of different countries. Based on the conclusions of the model simulation, this article evaluates the dual impact of the epidemic on people’s wellbeing and the economy.

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Hedging oil price risk with gold during COVID-19 pandemic

Cited by 156 publications

References 79 publications

Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

Examining the Asymmetric Impact of COVID-19 Pandemic and Global Financial Crisis on Dow Jones and Oil Price Shock

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

The Progression of COVID-19 and the Government Response in China

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