Gold and capital market in Indonesia: A preview on strategy of hedging and diversification

Abstract

This study examines the establishment of a portfolio among sharia stocks represented by the Jakarta Islamic Index (JII) with gold (gold futures contracts). Gold price used in this research was the gold price in the international market which was in USD denomination and also converted into Rupiah (IDR), by considering commodity futures instruments in Indonesia using fixed rate or floating rate option. The data analysis technique used in this research was the dynamic portfolio formulation by using Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroscedasticity (DCC-GARCH), so that the portfolio produced was an active portfolio and it could change its composition over time. The results of this study indicate that gold is able to provide hedging effectiveness as well as to reduce the volatility of sharia stocks included in the JII in the Indonesia Stock Exchange. This research is also able to prove that including gold instruments into a sharia-based stock portfolio can

Volatility spillovers and contagion between energy sector and financial assets during COVID-19 crisis period

“…Gold and Bitcoin can be considered as safe havens during the global pandemic when investing in the NYSE energy stocks. This result is consistent with that of Gaspareniene et al ( 2018 ) and Robiyanto et al ( 2019 ). However, it is inconsistent with that of Conlon and McGee ( 2020 ) and Corbet et al ( 2020 ).…”

The Formulation of a Dynamic Portfolio between Gold and Stocks on the Indonesia Stock Exchange during the COVID-19 Pandemic

“…The average yield of a portfolio formed from stocks and gold is greater than the average recorded from using only the stock portfolio. The findings from the Sharpe and Sortino Ratios are in line with the results of Robiyanto (2018), El Hedi Arouri et al, (2015, Hoang et al, (2015), and Robiyanto, Hadiyatno, et al, (2019) which showed the portfolio formed from stocks and gold to better than those obtained from stocks alone.…”

“…Moreover, portfolios with gold are believed to have the ability to produce significantly better performance (El Hedi Arouri et al, 2015) and this is associated with the negative correlation of its nature to other assets which makes it a good factor in portfolio diversification due to the usual increase in its price when the price of other assets reduce (Hoang, Lean, and Wong, 2015). Robiyanto, Hadiyatno, Sudjinan, and Ernayani (2019) also found the performance of a stock portfolio to improve due to the inclusion of gold. These arguments, therefore, led to the formulation of the following hypothesis : the performance of the dynamic portfolio formed from combining LQ-45 stocks and gold is better than those formed with LQ-45 stocks alone.…”

Hedge effectiveness of put replication, gold, and oil on ASEAN-5 equities

“…This result indicates that bond markets sustain the traditional role as a hedge for the equities, at least on average. While this result is consistent with Ciner et al (2013), however, this result is also in line with Robiyanto et al (2019aRobiyanto et al ( , 2019b who suggested that government bonds are not simply diversifier instruments, but also have roles as a safe haven and hedge in the Indonesian capital market. This condition may exist since Indonesian and Malaysian government bonds are in demand by foreign investors (Gusdinar and Koesrindartoto 2013).…”

“…This research utilized the Dynamic Conditional Correlation (DCC) process proposed by Engle (2002). The method was used for the construction of the portfolio that consists of equities, gold, and oil in previous studies such as Arouri et al (2014); Maghyereh et al (2017); Robiyanto et al (2019aRobiyanto et al ( , 2019b; Robiyanto et al (2017). This model can capture time-varying and dynamic correlation using the return series without complex calculations.…”