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Abstract
This study observes the effectiveness of hedging by using the gold commodity futures instrument as a hedge asset towards Indonesian stock which is represented by sectoral indices and Composite Stock Price Index (CSPI). By using DCC-GARCH which can dynamically accommodate the correlation between gold and the stock, this study found gold could become a safe haven asset towards stock in Indonesia. In addition, this study found that gold can effectively become a hedge asset for the stocks in Indonesia and the hedged portfolio resulted in a higher risk-adjusted performance of the portfolio of investment.
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References
- Ahmad, Z., & Ibrahim, H. (2002). A Study of Performance of the KLSE Syariah Index. Malaysian Management Journal, 6(1&2), 25-34.
- Aparicio, F. M., & Estrada, J. (2001). Empirical Distributions of Stock Returns: European Securities Markets 1990 - 1995. European Journal of Finance 7, 1-21.
- Arouri, M. E. H., Lahiani, A., & Nguyen, D. K. (2014). World gold prices and stock returns in China: insights for hedging and diversification strategies. Working Paper.
- Baur, D. G., & Lucey, B. M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds, and Gold. The Financial Review, 45, 217-229. doi: 10.1111/j.1540-6288.2010.00244.x
- Beckmann, J., Berger, T., & Czudaj, R. (2014). Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach. Economic Modelling.
- Capie, F., Mills, T. C., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions, and Money, 15(4), 343-352. doi: 10.1016/j.intfin.2004.07.002
- Claessens, S., & Kose, M. A. (2013). Financial Crises: Explanations, Types, and Implications: International Monetary Fund Working Paper.
- Dajcman, S., Festic, M., & Kavkler, A. (2012). European stock market comovement dynamics during some major financial market turmoils in the period 1997 to 2010 – a comparative DCC-GARCH and wavelet correlation analysis. Applied Economics Letters, 19(13), 1249-1256. doi: 10.1080/13504851.2011.619481
- Damodaran, A. (2008). Strategic Risk Taking, a Framework for Risk management Y. J. Wind (Ed.)
- Dempster, N., & Artigas, J. C. (2010). Gold: inflation Hedge and Long-Term Strategic Asset. The Journal of Wealth Management, 13(2), 69-75.
- Evans, J. D. (1996). Straightforward Statistics for the Behavioral Sciences: Brooks/Cole Publishing Company.
- Greer, R. J. (1997). What is an Asset Class, Anyway? Journal of Portfolio Management, 23(2), 86 - 91.
- Jobson, J. D., & Korkie, B. M. (1981). Performance Hypothesis Testing with Sharpe and Treynor Measures. the Journal of Finance, 36(4), 889 - 908 doi: 10.1111/j.1540-6261.1981.tb04891.x
- Ku, Y.-H. H., Chen, H.-C., & Chen, K.-H. (2007). On the application of the dynamic conditional correlation model in estimating optimal time-varying hedge ratios. Applied Economics Letters, 14(7), 503-509. doi: 10.1080/13504850500447331
- Kumar, D. (2014). Return and Volatility Transmission Between Gold and Stock Sectors: Application of Portfolio Management and Hedging Effectiveness. IIMB Management Review, 26(1), 5-16. doi: 10.1016/j.iimb.2013.12.002
- Levine, D. M., Krehbiel, T. C., & Berenson, M. L. (2006). Business Statistics, A First Course (Vol. 4). Upper Saddle River, New Jersey, 07458: Pearson Prentice Hall
- Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, 7(1), 77-91. doi: http://dx.doi.org/10.1111/j.1540-6261.1952.tb01525.x
- Ogata, H. (2012). Optimal Portfolio Estimation for Dependent Financial Returns with Generalized Empirical Likelihood. Advances in Decision Sciences, 2012, 1-8. doi: http://dx.doi.org/10.1155/2012/973173
- Pangestuti, I. R. D., Wahyudi, S., & Robiyanto, R. (2017). Performance Evaluation of Equity Mutual Funds in Indonesia Period of 2012-2014. Jurnal Keuangan dan Perbankan, 21(4).
- Robiyanto, R. (2017a). The Analysis of Capital Market Integration in ASEAN Region by Using the OGARCH Approach. Jurnal Keuangan dan Perbankan, 21(2), 169-175.
- Robiyanto, R. (2017b). Month of the Year Effect Pada Pasar Obligasi di Indonesia. Jurnal Ekonomi dan Bisnis, 20(2), 291-302. doi: 10.24914/jeb.v20i2.1093
- Robiyanto, R. (2018a). Performance Evaluation of Stock Price Indexes in the Indonesia Stock Exchange. International Research Journal of Business Studies, 10(3).
- Robiyanto, R., Hersugondo, S., & Puryandani, S. (2015). Chinese Zodiac Effect and Precious Metals Returns of 1900-2013. International Journal of Applied Business and Economic Research, 13(5).
- Robiyanto, R., & Puryandani, S. (2015). The Javanese Lunar Calendar’s Effect on Indonesian Stock Returns. Gadjah Mada International Journal of Business, 17(2), 125-137. doi: https://doi.org/10.22146/gamaijb.6906
- Robiyanto, R., Wahyudi, S., & Pangestuti, I. R. D. (2017a). Testing Commodities as Safe Haven and Hedging Instrument on ASEAN's Five Stock Markets Jurnal Ekonomi Kuantitatif Terapan, 10(2). doi: https://doi.org/10.24843/JEKT.2017.v10.i02.p11
- Robiyanto, R., Wahyudi, S., & Pangestuti, I. R. D. (2017b). The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets. Gadjah Mada International Journal of Business, 19(2), 167-192. doi: https://doi.org/10.22146/gamaijb.26260
- Sharma, R., & Mathur, S. K. (2016). Forecasting Portfolio Value-at-risk via DCC-MGARCH Model: Impact of Brexit on Valuation of UK Pound and Indian Rupee. Journal of International Economics, 7(2), 56-63.
- Sharpe, W. F. (1966). Mutual Fund Performance. Journal of Business 39(1), 119-138. doi: http/dx.doi.org/10.1086/294846
- Worthington, A. C., & Pahlavani, M. (2007). Gold Investment as an Inflationary Hedge: Cointegration Evidence With Allowance for Endogenous Structural Breaks. Applied Financial Economics Letters, 3(4), 259-262. doi: http://dx.doi.org/10.1080/17446540601118301
- Zulkafli, A. H., Ahmad, Z., & M., E. E. (2017). The Performance of Socially Responsible Investments in Indonesia: A Study of the Sri Kehati Index (SKI). Gadjah Mada International Journal of Business, 19(1), 59-76. doi: https://doi.org/10.22146/gamaijb.17959
References
Ahmad, Z., & Ibrahim, H. (2002). A Study of Performance of the KLSE Syariah Index. Malaysian Management Journal, 6(1&2), 25-34.
Aparicio, F. M., & Estrada, J. (2001). Empirical Distributions of Stock Returns: European Securities Markets 1990 - 1995. European Journal of Finance 7, 1-21.
Arouri, M. E. H., Lahiani, A., & Nguyen, D. K. (2014). World gold prices and stock returns in China: insights for hedging and diversification strategies. Working Paper.
Baur, D. G., & Lucey, B. M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds, and Gold. The Financial Review, 45, 217-229. doi: 10.1111/j.1540-6288.2010.00244.x
Beckmann, J., Berger, T., & Czudaj, R. (2014). Does Gold Act as a Hedge or a Safe Haven for Stocks? A Smooth Transition Approach. Economic Modelling.
Capie, F., Mills, T. C., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions, and Money, 15(4), 343-352. doi: 10.1016/j.intfin.2004.07.002
Claessens, S., & Kose, M. A. (2013). Financial Crises: Explanations, Types, and Implications: International Monetary Fund Working Paper.
Dajcman, S., Festic, M., & Kavkler, A. (2012). European stock market comovement dynamics during some major financial market turmoils in the period 1997 to 2010 – a comparative DCC-GARCH and wavelet correlation analysis. Applied Economics Letters, 19(13), 1249-1256. doi: 10.1080/13504851.2011.619481
Damodaran, A. (2008). Strategic Risk Taking, a Framework for Risk management Y. J. Wind (Ed.)
Dempster, N., & Artigas, J. C. (2010). Gold: inflation Hedge and Long-Term Strategic Asset. The Journal of Wealth Management, 13(2), 69-75.
Evans, J. D. (1996). Straightforward Statistics for the Behavioral Sciences: Brooks/Cole Publishing Company.
Greer, R. J. (1997). What is an Asset Class, Anyway? Journal of Portfolio Management, 23(2), 86 - 91.
Jobson, J. D., & Korkie, B. M. (1981). Performance Hypothesis Testing with Sharpe and Treynor Measures. the Journal of Finance, 36(4), 889 - 908 doi: 10.1111/j.1540-6261.1981.tb04891.x
Ku, Y.-H. H., Chen, H.-C., & Chen, K.-H. (2007). On the application of the dynamic conditional correlation model in estimating optimal time-varying hedge ratios. Applied Economics Letters, 14(7), 503-509. doi: 10.1080/13504850500447331
Kumar, D. (2014). Return and Volatility Transmission Between Gold and Stock Sectors: Application of Portfolio Management and Hedging Effectiveness. IIMB Management Review, 26(1), 5-16. doi: 10.1016/j.iimb.2013.12.002
Levine, D. M., Krehbiel, T. C., & Berenson, M. L. (2006). Business Statistics, A First Course (Vol. 4). Upper Saddle River, New Jersey, 07458: Pearson Prentice Hall
Markowitz, H. M. (1952). Portfolio Selection. Journal of Finance, 7(1), 77-91. doi: http://dx.doi.org/10.1111/j.1540-6261.1952.tb01525.x
Ogata, H. (2012). Optimal Portfolio Estimation for Dependent Financial Returns with Generalized Empirical Likelihood. Advances in Decision Sciences, 2012, 1-8. doi: http://dx.doi.org/10.1155/2012/973173
Pangestuti, I. R. D., Wahyudi, S., & Robiyanto, R. (2017). Performance Evaluation of Equity Mutual Funds in Indonesia Period of 2012-2014. Jurnal Keuangan dan Perbankan, 21(4).
Robiyanto, R. (2017a). The Analysis of Capital Market Integration in ASEAN Region by Using the OGARCH Approach. Jurnal Keuangan dan Perbankan, 21(2), 169-175.
Robiyanto, R. (2017b). Month of the Year Effect Pada Pasar Obligasi di Indonesia. Jurnal Ekonomi dan Bisnis, 20(2), 291-302. doi: 10.24914/jeb.v20i2.1093
Robiyanto, R. (2018a). Performance Evaluation of Stock Price Indexes in the Indonesia Stock Exchange. International Research Journal of Business Studies, 10(3).
Robiyanto, R., Hersugondo, S., & Puryandani, S. (2015). Chinese Zodiac Effect and Precious Metals Returns of 1900-2013. International Journal of Applied Business and Economic Research, 13(5).
Robiyanto, R., & Puryandani, S. (2015). The Javanese Lunar Calendar’s Effect on Indonesian Stock Returns. Gadjah Mada International Journal of Business, 17(2), 125-137. doi: https://doi.org/10.22146/gamaijb.6906
Robiyanto, R., Wahyudi, S., & Pangestuti, I. R. D. (2017a). Testing Commodities as Safe Haven and Hedging Instrument on ASEAN's Five Stock Markets Jurnal Ekonomi Kuantitatif Terapan, 10(2). doi: https://doi.org/10.24843/JEKT.2017.v10.i02.p11
Robiyanto, R., Wahyudi, S., & Pangestuti, I. R. D. (2017b). The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets. Gadjah Mada International Journal of Business, 19(2), 167-192. doi: https://doi.org/10.22146/gamaijb.26260
Sharma, R., & Mathur, S. K. (2016). Forecasting Portfolio Value-at-risk via DCC-MGARCH Model: Impact of Brexit on Valuation of UK Pound and Indian Rupee. Journal of International Economics, 7(2), 56-63.
Sharpe, W. F. (1966). Mutual Fund Performance. Journal of Business 39(1), 119-138. doi: http/dx.doi.org/10.1086/294846
Worthington, A. C., & Pahlavani, M. (2007). Gold Investment as an Inflationary Hedge: Cointegration Evidence With Allowance for Endogenous Structural Breaks. Applied Financial Economics Letters, 3(4), 259-262. doi: http://dx.doi.org/10.1080/17446540601118301
Zulkafli, A. H., Ahmad, Z., & M., E. E. (2017). The Performance of Socially Responsible Investments in Indonesia: A Study of the Sri Kehati Index (SKI). Gadjah Mada International Journal of Business, 19(1), 59-76. doi: https://doi.org/10.22146/gamaijb.17959