The Volatility–Variability Hypotheses Testing and Hedging Effectiveness of Precious Metals for the Indonesian and Malaysian Capital Markets

Abstract

Abstract:This study evaluates the use of futures contracts for precious metals to hedge against stock market risks and their hedging effectiveness on the Indonesian Stock Exchange (IDX) and the Kuala Lumpur Stock Exchange (KLSE). This study found that gold was the most effective hedging instrument, since it produced the highest hedging effectiveness both on the IDX and the KLSE among the other precious metals. None of the hedged portfolios had a higher Sharpe's ratio than the unhedged one on the IDX; however, all the hedged portfolios on the KLSE had a higher Sharpe's ratio than the unhedged ones. Almost all the hedged portfolios could produce a higher Treynor's ratio than the unhedged portfolios, both on the IDX and the KLSE. In general, this study concluded that studying some precious metals could reduce the investment risk, which was shown through the variance produced by the smaller portfolios, while gold can improve the risk-adjusted performance.

The Dynamic Correlation between ASEAN-5 Stock Markets and World Oil Prices

“…Therefore this study will review the relationship of world oil price change with the stock market in the main countries of ASEAN, such as Indonesia, Singapore, Malaysia, Philippines, and Thailand using a dynamic approach such as DCC-GARCH. DCC-GARCH use in this study because the DCC-GARCH has proven can be successively estimated for large time-varying covariance matrices (Filis, Degiannakis, & Floros 2011;Robiyanto, Wahyudi, & Pangestuti, 2017b), even though there were some methods which could do so such as the Orthogonal-GARCH (Robiyanto, 2017), and the DCC-GARCH (Arouri, Lahiani, & Nguyen, 2014).…”

“…The DCC-GARCH model has also been used by Robiyanto, Wahyudi, & Pangestuti (2017b) in studying the dynamic relationship between the Indonesian stock market and the Malaysian stock market with the price of gold. While the variation of GARCH model such as OGARCH (Orthogonal Generalized Autoregressive Conditional Heteroscedasticity) also been used by Robiyanto (2017).…”

Performance Evaluation of Equity Mutual Funds in Indonesia

“…Equity mutual funds as a stock portfolio can be measured for its performance using portfolio measurement methods such as Sharpe Index, Treynor Ratio, Jensen Index, and Sortino Ratio. Of all the measuring instruments, the Sharpe Index in the most commonly used and even become standard for industry (Scholz & Wilkens, 2006;Kidd, 2011b;Bednarek, Patel, & Ramezani, 2014;Robiyanto, Wahyudi, & Pangestuti, 2017) since it can be implemented to compare performance among mutual funds (Swinkels & Rzezniczak, 2009). However, some of these measuring instruments such as Sharpe Index and Jensen Index are perceived as to have weaknesses.…”

Indonesian Stock Market’s Dynamic Integration with Asian Stock Markets and World Stock Markets

“…the DCC-GARCH model introduced by Engle (2002) can be applied to a study of stock market integration dynamically although there is still limited research applying it (i.e., Zinecker et al (2016) conducted integration studies on stock markets in Poland, Czechoslovakia, and Germany). According to Filis, Degiannakis and Floros (2011); Robiyanto, Wahyudi and Pangestuti (2017), the DCC-GARCH model also has successfully proven to estimate large matrices of time-varying covariances. In normal stock market circumstances, DCC-GARCH values tend to be stable at narrow range, but different things may occur if there is a turmoil in stock market and commodities, i.e.…”