Quantile Dependence and Portfolio Management between Oil, Gold, Silver and MENA Stock Markets

The impacts of global financial crisis (GFC) and COVID-19 pandemic crisis can be far reaching while shedding an in-depth understanding on the dynamics of dependence between commodity markets (such as go1d, silver and Brent) and stock markets. The hedging attributes may differ remarkably in the event of significant exogeneous shocks, such as the GFC and the COVID-19, the effects of which appear to have a long-lasting effect on investors’ decisions. Due to its strategic positioning in the commodity markets and relative weaknesses in the stock markets, the MENA countries present a unique case of investigation to guide inferences in similar regional settings. We employ novel Quantile-on-Quantile (QQ) regression and the causality-in-quantiles approaches to elicit significant asymmetric dependence between commodity and the stock markets across MENA countries. Our results show variations in the marginal stock price impacts on commodity markets; the effects are overall negative across quantiles and that all stock markets exert larger effects on commodity prices at lower quantiles. Exogenous shocks, such as the GFC imparted greater negative effects on both dynamic nature of interdependence and direction of causality show evidence of adaptability of investors to uncertainty. The hedging ratio shows strong hedging effectiveness for silver and more for Brent for a number of MENA countries. The gold appears to lose its shine over hedging effectiveness.