Providing risk hedging model and optimal portfolio based on the stocks, currency and gold spillovers

Document Type : Original Article

Authors
Zahra Razeghi 1
REZA TEHRANI 2
Zohreh Hajiha 3
1 Department of Financial Engineering, Kish International Branch, Islamic Azad University, Kish Island, Iran
2 Professor, Management and Insurance Group, Faculty of Management, Tehran University, Tehran, Iran
3 Professor. Department of Accounting, South Tehran Branch, Islamic Azad University, Tehran, Iran
10.30495/jik.2024.76315.4453
Abstract
The aim of the current research is to develop a model of risk hedging and optimal portfolio based on the stocks, currency and gold spillovers in Iran. In this research the information related to gold price, dollar rate and stock market index during the period of 23 July 2013 to 19 March 2023 was used on a daily basis. After estimating the VAR model, in the next step, VAR-GARCH method was used to estimate the conditional variance of gold, dollar and stock market index. In the following, using the MGARCH-based model, the correlation of variables was estimated based on time. The results of the research show that the existence of correlations between markets is very stable, that this correlation between the gold market and the dollar has been more than other markets, and the multivariable VAR-GARCH model shows that the gold, dollar and stock markets are well covered by parallel markets. The results also show that gold is considered a desirable diversifier in the Iranian market, so that the risk coverage ratio of gold against the stock market and the dollar was 0.04 and 0.78, respectively. These results show that to minimize risk without reducing the expected return of their portfolio, investors should hold more gold than stocks and dollars in their portfolio. On the other hand, the optimal weight of the stock market against the dollar and gold markets was 0.20 and 0.04, respectively.
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