Scientists at the SUSU School of Economics and Management, together with foreign colleagues, have analyzed the roles of various groups of commodities in a traditional portfolio of equities. In their work, economists examined the hedging and diversification ability of 21 commodities for 49 international stock markets belonging to countries at different stages of economic development. The results of this work will help investors minimize risks in stock markets transactions. They were published in the highly ranked journal Resources Policy (Q1).
Safe investments during a crisis
Seid Javad Hussein Shahzad, Senior Research Fellow at the Department of Accounting, Analysis and Audit, Ph.D. in Finance, proposed the idea of researching the stock markets of raw materials of developing countries to his colleagues from Germany, Lebanon, and Vietnam. This analysis is especially relevant for countries whose economies are highly dependent on raw materials prices. It is no secret that in crisis situations in stock markets, investors are looking for ways to minimize risks in transactions, this process is called hedging. For example, oil is considered safe for investing in the stock markets of developing countries such as Russia.
“There is an ongoing debate about the role of different types of commodities in a traditional portfolio of equities and it has intensified. Similarly, there is a stock take of studies examining safe haven, hedging, and diversification roles of commodities for different stock markets (classified based on their development stage and also on their net trade exposures). This study provides a review of existing empirical works highlights heterogeneity in findings and provides a comprehensive analysis of these aspects. The results of or study will allow investors to objectively assess the situation in the stock markets of raw materials of developing countries,” explains Dr. Shahzad.
Comprehensive statistics analysis
The goal of economists was to prove that not only traditionally oil is a priority investment area, but also other goods. The results of the study challenged the specific roles assigned to a certain commodity for a specific equity investment. However, many other commodities, especially other precious and industrial metals, are also safe for investment in many global stock markets.
“The work was mainly focused on the analysis of the side effects of volatility, asset price volatility, during the crisis. I plan to work on studying the index of the relative dependence of commodity prices to find new ideas for the investment community,” – says the economist.
Our findings are useful from individual investors to institutional investors and also for the policymakers concerned about the overall risk exposure of economies e.g., economies heavily dependent on oil (or other commodities for the purpose of trade) revenues. Particularly, important for various market participants in developed, emerging, and frontier stock markets who are always in a quest not only of a hedging asset capable of mitigating the downside risk of equity markets but also a safe haven asset capable of offsetting the extreme downside risk of equity markets (i.e., the downside risk during stress periods).
SUSU participates in the 5-100 Project, to increase the competitive abilities of Russian universities among the world's leading research and educational centers. Within the framework of the 5-100 Project, South Ural State University is collaborating with scientists from around the world in priority research areas. This improves the recognition of the university in the world and makes it more competitive. All the departments of the university develop international relations with scientists from other countries for joint projects in many areas of scientific activities.