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2020 ; 68
(ä): 101740
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The impact of oil and gold price fluctuations on the South African equity market:
Volatility spillovers and financial policy implications
#MMPMID34173413
Morema K
; Bonga-Bonga L
Resour Policy
2020[Oct]; 68
(ä): 101740
PMID34173413
show ga
This paper assesses the impact of gold and oil price fluctuations on the
volatility of the South African stock market and its component indices or sectors
- namely, the financial, industrial and resource sectors - to infer the link
between the commodity and stock markets in South Africa. Use is made of the
vector autoregressive asymmetric dynamic conditional correlation generalised
autoregressive conditional heteroskedasticity (VAR-ADCC-GARCH) model to this end.
Moreover, the paper assesses the magnitude of the optimal portfolio weight, hedge
ratio and hedge effectiveness for portfolios constituted of a pair of assets,
namely oil-stock and gold-stock pairs. The findings of the study show that there
is significant volatility spillover between the gold and stock markets, and the
oil and stock markets. This finding suggests the importance of the link between
the commodity and stock markets, which is essential for portfolio management.
With reference to portfolio optimization and the possibility of hedging when
using the pairs of assets under study, the findings suggest the importance of
combining gold and stocks as the best strategy to hedge against stocks risk,
especially during financial crises.