TY - JOUR
T1 - Extreme risk spillovers and hedging strategies between Indonesia sectorial stocks and commodity markets
AU - El Khoury, Rim
AU - Mensi, Walid
AU - Alshater, Muneer M.
AU - Kang, Sanghoon
N1 - Publisher Copyright:
© 2023, Emerald Publishing Limited.
PY - 2023
Y1 - 2023
N2 - Purpose: This study examines the risk spillovers between Indonesian sectorial stocks (Energy, Basic Materials, Industrials, Consumer Cyclicals, Consumer Non-cyclical and Financials), the aggregate index (IDX) and two commodities (gold and West Texas Intermediate Crude Oil [WTI] futures). Design/methodology/approach: The study uses two methodologies: the TVP-VAR model of Antonakakis and Gabauer (2017) and the quantile connectedness approach of Ando et al. (2022). The data cover the period from October 04, 2010, to April 5, 2022. Findings: The results show that the IDX, industrials and materials are net transmitters, while the financials, consumer noncyclical and energy sectors are the dominant shock receivers. Using the quantile connectedness approach, the role of each sector is heterogeneous and asymmetric, and the return spillover is stronger at lower and higher quantiles. Furthermore, the portfolio hedging results show that oil offers more diversification gains than gold, and hedging oil is more effective during the pandemic. Practical implications: This study provides valuable insights for investors to diversify their portfolios and for policymakers to develop policies, regulations and risk management tools to promote stability in the Indonesian stock market. The results can inform the design of market regulations and the development of risk management tools to ensure the stability and resilience of the market. Originality/value: This study is the first to examine the spillovers between commodities and Indonesian sectors, recognizing the presence of heterogeneity in the relationship under different market conditions. It provides important portfolio diversification insights for equity investors interested in the Indonesian stock market and policymakers.
AB - Purpose: This study examines the risk spillovers between Indonesian sectorial stocks (Energy, Basic Materials, Industrials, Consumer Cyclicals, Consumer Non-cyclical and Financials), the aggregate index (IDX) and two commodities (gold and West Texas Intermediate Crude Oil [WTI] futures). Design/methodology/approach: The study uses two methodologies: the TVP-VAR model of Antonakakis and Gabauer (2017) and the quantile connectedness approach of Ando et al. (2022). The data cover the period from October 04, 2010, to April 5, 2022. Findings: The results show that the IDX, industrials and materials are net transmitters, while the financials, consumer noncyclical and energy sectors are the dominant shock receivers. Using the quantile connectedness approach, the role of each sector is heterogeneous and asymmetric, and the return spillover is stronger at lower and higher quantiles. Furthermore, the portfolio hedging results show that oil offers more diversification gains than gold, and hedging oil is more effective during the pandemic. Practical implications: This study provides valuable insights for investors to diversify their portfolios and for policymakers to develop policies, regulations and risk management tools to promote stability in the Indonesian stock market. The results can inform the design of market regulations and the development of risk management tools to ensure the stability and resilience of the market. Originality/value: This study is the first to examine the spillovers between commodities and Indonesian sectors, recognizing the presence of heterogeneity in the relationship under different market conditions. It provides important portfolio diversification insights for equity investors interested in the Indonesian stock market and policymakers.
KW - Commodity markets
KW - Hedging strategies
KW - Indonesian sectorial stocks
KW - Market regulations
KW - Portfolio diversification
KW - Risk spillovers
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U2 - 10.1108/IJOEM-11-2022-1721
DO - 10.1108/IJOEM-11-2022-1721
M3 - Article
AN - SCOPUS:85153597481
SN - 1746-8809
JO - International Journal of Emerging Markets
JF - International Journal of Emerging Markets
ER -