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Hedging stock market prices with WTI, Gold, VIX and cryptocurrencies: a comparison between DCC, ADCC and GO-GARCH models

Mohamed Fakhfekh (Department of Finance, Higher Institute of Business Administration, University of Sfax, Sfax, Tunisia)
Ahmed Jeribi (Department of Finance, Faculty of Economics and Management Sciences, University of Monastir, Mahdia, Tunisia)
Ahmed Ghorbel (Department of Quantitative Methods, Faculty of Economics and Management Sciences, University of Sfax, Sfax, Tunisia)
Nejib Hachicha (Department of Quantitative Methods, Faculty of Economics and Management Sciences, University of Sfax, Sfax, Tunisia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 1 June 2021

229

Abstract

Purpose

In a first place, the present paper is designed to examine the dynamic correlations persistent between five cryptocurrencies, WTI, Gold, VIX and four stock markets (SP500, FTSE, NIKKEI and MSCIEM). In a second place, it investigates the relevant optimal hedging strategy.

Design/methodology/approach

Empirically, the authors examine how WTI, Gold, VIX and five cryptocurrencies can be applicable to hedge the four stock markets. Three variants of multivariate GARCH models (DCC, ADCC and GO-GARCH) are implemented to estimate dynamic optimal hedge ratios.

Findings

The reached findings prove that both of the Bitcoin and Gold turn out to display remarkable hedging commodity features, while the other assets appear to demonstrate a rather noticeable disposition to act as diversifiers. Moreover, the results show that the VIX turns out to stand as the most effectively appropriate instrument, fit for hedging the stock market indices various related refits. Furthermore, the results prove that the hedging strategy instrument was indifferent for FTSE and NIKKEI stock while for the American and emerging markets, the hedging strategy was reversed from the pre-cryptocurrency crash to the during cryptocurrency crash period.

Originality/value

The first paper's empirical contribution lies in analyzing emerging cross-hedge ratios with financial assets and compare hedging effectiveness within the period of crash and the period before Bitcoin crash as well as the sensitivity of results to refits choose to compare between short term hedging strategy and long-term one.

Keywords

Citation

Fakhfekh, M., Jeribi, A., Ghorbel, A. and Hachicha, N. (2021), "Hedging stock market prices with WTI, Gold, VIX and cryptocurrencies: a comparison between DCC, ADCC and GO-GARCH models", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-03-2020-0264

Publisher

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Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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