Oil and gold as a hedge and safe-haven for metals and agricultural commodities with portfolio implications
Date
2022
Authors
Naeem, M.A.
Hasan, M.
Arif, M.
Suleman, M.T.
Kang, S.H.
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Journal article
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Energy Economics, 2022; 105(105758):1-15
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Abstract
This paper examines the safe-haven and hedging potential of oil and gold against industrial metals and agricultural commodities using a novel approach of quantile-on-quantile regression (QQR). For empirical analysis, we use the data on these commodities from January 2000 to December 2018, which further splits up into two sub-periods based on the global financial crisis (GFC). The results from the time-varying correlation of oil (gold) with metals and agriculture commodities suggest that oil (gold) has a lower correlation with metals and agriculture in the pre-GFC period than post-GFC. Further, the QQR model for two time periods (pre-GFC and post GFC) was used to examine whether oil (gold) serves as a hedge (safe-haven) during the two periods.
We conclude that oil was a safe-haven for metals and agricultural commodities pre-GFC but lost that ability post-GFC. Finally, we analyze the hedge ratio and hedge effectiveness pre- and post-GFC and confirm that oil had higher hedge effectiveness than gold during the pre-GFC period.
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Copyright 2022 Elsevier B.V.