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Please use this identifier to cite or link to this item: https://dspace.lboro.ac.uk/2134/25836

Title: Do commodities make effective hedges for equity investors?
Authors: Olson, Eric
Vivian, Andrew J.
Wohar, Mark E.
Keywords: Dynamic hedge ratios
Conditional correlation
Commodity market
Equity index
Risk management
Issue Date: 2017
Publisher: © Elsevier
Citation: OLSON, E., VIVIAN, A.J. and WOHAR, M.E., 2017. Do commodities make effective hedges for equity investors? Research in International Business and Finance, doi:10.1016/j.ribaf.2017.07.064.
Abstract: The 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.
Description: This paper is closed access until 8th January 2019.
Version: Accepted for publication
DOI: 10.1016/j.ribaf.2017.07.064
URI: https://dspace.lboro.ac.uk/2134/25836
Publisher Link: https://doi.org/10.1016/j.ribaf.2017.07.064
ISSN: 0275-5319
Appears in Collections:Closed Access (Business School)

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