Olson_Vivian_Wohar_Hedging_Equity_Returns_with_Commodities_ACCEPTED.pdf (500.06 kB)
Do commodities make effective hedges for equity investors?
journal contribution
posted on 2017-07-20, 10:58 authored by Eric Olson, Andrew VivianAndrew Vivian, Mark WoharThe purpose of this paper is to evaluate whether commodities are effective hedges for equity holders. We employ three different methodologies to calculate time varying hedge ratios. First, we examine time-varying hedge ratios and how much portfolio risk can be reduced relative to a long position in the S&P 500. We calculate hedge ratios from realized variances and covariances; second, we estimate a recursive multivariate GARCH (BEKK) model and calculate the hedge ratios from the estimated covariances; and thirdly, we calculate the hedge ratios by estimating recursive OLS regressions. The results of our paper are very clear. First, commodities are not effective hedges for the S&P 500. Equity market investors and asset managers looking for a way to manage and reduce portfolio risk will be well advised to search for alternative hedges for the S&P 500 than commodities. Second, our results do not support the claim that commodities were a good hedge for the equity market during the financial crisis.
History
School
- Business and Economics
Department
- Business
Published in
Research in International Business and FinanceVolume
42Pages
I - XLICitation
OLSON, E., VIVIAN, A.J. and WOHAR, M.E., 2017. Do commodities make effective hedges for equity investors? Research in International Business and Finance, 42, pp. 1274-1288.Publisher
© ElsevierVersion
- AM (Accepted Manuscript)
Publisher statement
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/Acceptance date
2017-07-03Publication date
2017-07-08Notes
This paper was published in the journal Research in International Business and Finance and the definitive published version is available at https://doi.org/10.1016/j.ribaf.2017.07.064.ISSN
0275-5319Publisher version
Language
- en