Bahar-Azadi Gold Coin Hedging Strategies: A Comparison of ADCC, GO-GARCH and Copula-GARCH Approaches

Abstract

In this paper, we employ a new generation of multivariate volatility models, i.e. ADCC, GO-GARCH and Copula-GARCH to estimate and investigate the hedging performance for Bahar-Azadi Gold Coins spot markets (GC) and Futures market (GCF), during 27/10/2010 to 21/7/2016. The empirical results show that the hedge ratios estimated from the GO-GARCH model are preferred (most effective) for hedging GC prices with GCF. The results also show that the spot and futures prices tend to co-move in times of market stress. Indeed, those investors who hold diversified portfolios of gold coin and gold coin futures may face significant losses in a bear market. Here a short position on the gold coin futures may be beneficial to gold coin investors because it helps reduce the portfolio’s extreme losses.

Keywords

• adcc model
• bahar-azadi gold coin
• copula-garch model
• go-garch model
• hedging strategyies