Gold and US sectoral stocks during COVID-19 pandemic

Afees A Salisu; Xuan Vinh Vo; Brian Lucey

doi:10.1016/j.ribaf.2021.101424

Gold and US sectoral stocks during COVID-19 pandemic

Res Int Bus Finance. 2021 Oct:57:101424. doi: 10.1016/j.ribaf.2021.101424. Epub 2021 May 5.

Authors

Afees A Salisu^{1

2}, Xuan Vinh Vo^{2

3}, Brian Lucey^{4

5}

Affiliations

¹ Centre for Econometric & Allied Research, University of Ibadan, Ibadan, Nigeria.
² Institute of Business Research, University of Economics, Ho Chi Minh City, Viet Nam.
³ Institute of Business Research and CFVG Ho Chi Minh City, University of Economics, Ho Chi Minh City, Viet Nam.
⁴ School of Business and Institute for International Integration Studies, Trinity College, Dublin, Ireland.
⁵ University of Economics, Ho Chi Minh City, Viet Nam.

Abstract

In this study, we examine the hedging relationship between gold and US sectoral stocks during the COVID-19 pandemic. We employ a multivariate volatility framework, which accounts for salient features of the series in the computation of optimal weights and optimal hedging ratios. We find evidence of hedging effectiveness between gold and sectoral stocks, albeit with lower performance, during the pandemic. Overall, including gold in a stock portfolio could provide a valuable asset class that can improve the risk-adjusted performance of stocks during the COVID-19 pandemic. In addition, we find that the estimated portfolio weights and hedge ratios are sensitive to structural breaks, and ignoring the breaks can lead to overestimation of the hedging effectiveness of gold for US sectoral stocks. Since the analysis involves sectoral stock data, we believe that any investor in the US stock market that seeks to maximize risk-adjusted returns is likely to find the results useful when making investment decisions during the pandemic.

Keywords: COVID-19 pandemic; Hedging effectiveness; Stocks.