Analyzing time-frequency co-movements across gold and oil prices with BRICS stock markets

A VaR based on wavelet approach

Walid Mensi, Besma Hkiri, Khamis H. Al-Yahyaee, Sang Hoon Kang

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

This paper examines the co-movements between five of the most important emerging stock markets namely the BRICS (Brazil, Russia, India, China and South Africa) and both the crude oil prices [West Texas Intermediate (WTI) and Europe Brent] and gold prices which are relevant to those commodity exporters and voracious consumers. Our results based on the wavelet approach show that BRICS index returns co-move with the WTI crude oil price at low frequencies (long horizons). Moreover, the strong level of co-movement is particularly captured during the onset of the global financial crisis. On the other hand, we find no evidence of co-movement between the BRICS stock markets and the gold price, indicating that gold can act as a hedge or a safe haven asset for the BRICS against extreme market movements. The implications of these results for the BRICS-commodity portfolios show that the portfolio risk (measured by the Value at Risk) is affected by the co-movements between stock and oil markets.

Original languageEnglish
JournalInternational Review of Economics and Finance
DOIs
Publication statusAccepted/In press - 2017

Fingerprint

BRICS countries
Comovement
Wavelets
Stock market
Oil prices
Gold price
Commodities
Crude oil price
Assets
Oil markets
Value at risk
Safe haven
Portfolio risk
Global financial crisis
Emerging stock markets
Hedge
Exporters

Keywords

  • BRICS
  • Co-movement
  • Commodity prices
  • Value at risk
  • Wavelet

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

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title = "Analyzing time-frequency co-movements across gold and oil prices with BRICS stock markets: A VaR based on wavelet approach",
abstract = "This paper examines the co-movements between five of the most important emerging stock markets namely the BRICS (Brazil, Russia, India, China and South Africa) and both the crude oil prices [West Texas Intermediate (WTI) and Europe Brent] and gold prices which are relevant to those commodity exporters and voracious consumers. Our results based on the wavelet approach show that BRICS index returns co-move with the WTI crude oil price at low frequencies (long horizons). Moreover, the strong level of co-movement is particularly captured during the onset of the global financial crisis. On the other hand, we find no evidence of co-movement between the BRICS stock markets and the gold price, indicating that gold can act as a hedge or a safe haven asset for the BRICS against extreme market movements. The implications of these results for the BRICS-commodity portfolios show that the portfolio risk (measured by the Value at Risk) is affected by the co-movements between stock and oil markets.",
keywords = "BRICS, Co-movement, Commodity prices, Value at risk, Wavelet",
author = "Walid Mensi and Besma Hkiri and Al-Yahyaee, {Khamis H.} and Kang, {Sang Hoon}",
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AU - Al-Yahyaee, Khamis H.

AU - Kang, Sang Hoon

PY - 2017

Y1 - 2017

N2 - This paper examines the co-movements between five of the most important emerging stock markets namely the BRICS (Brazil, Russia, India, China and South Africa) and both the crude oil prices [West Texas Intermediate (WTI) and Europe Brent] and gold prices which are relevant to those commodity exporters and voracious consumers. Our results based on the wavelet approach show that BRICS index returns co-move with the WTI crude oil price at low frequencies (long horizons). Moreover, the strong level of co-movement is particularly captured during the onset of the global financial crisis. On the other hand, we find no evidence of co-movement between the BRICS stock markets and the gold price, indicating that gold can act as a hedge or a safe haven asset for the BRICS against extreme market movements. The implications of these results for the BRICS-commodity portfolios show that the portfolio risk (measured by the Value at Risk) is affected by the co-movements between stock and oil markets.

AB - This paper examines the co-movements between five of the most important emerging stock markets namely the BRICS (Brazil, Russia, India, China and South Africa) and both the crude oil prices [West Texas Intermediate (WTI) and Europe Brent] and gold prices which are relevant to those commodity exporters and voracious consumers. Our results based on the wavelet approach show that BRICS index returns co-move with the WTI crude oil price at low frequencies (long horizons). Moreover, the strong level of co-movement is particularly captured during the onset of the global financial crisis. On the other hand, we find no evidence of co-movement between the BRICS stock markets and the gold price, indicating that gold can act as a hedge or a safe haven asset for the BRICS against extreme market movements. The implications of these results for the BRICS-commodity portfolios show that the portfolio risk (measured by the Value at Risk) is affected by the co-movements between stock and oil markets.

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KW - Value at risk

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