ASSESSMENT OF GOLD AND/OR CRUDE OIL AS INVESTMENTS FOR PORTFOLIO DIVERSIFICATION. A WARSAW STOCK EXCHANGE CASE STUDY
Abstract
The purpose of the study is to assess whether the inclusion of investments in gold and/or crude oil improves an investment portfolio consisting of shares of enterprises included in the WIG20 index (traditional investments). All possible combinations of investment portfolios with minimal risk and maximum efficiency were tested. The portfolios were determined based on Markowitz’s portfolio theory. All results were compared with a naive strategy. In total, nearly 55,000 investment portfolios consisting of three, four or five investments were constructed. The study showed that the application of portfolio theory contributes to obtaining better results than a naive strategy. The minimum risk portfolios that included gold and crude oil showed a risk reduction of 0.39 p.p. on average and a maximum cumulative loss of 7.85 p.p. on average. Portfolios with maximum efficiency achieved an average increase in the rate of return of the investment portfolio of 0.024 p.p. and an average increase in efficiency of 0.0256.
Downloads
References
Anand, R., Madhogaria, S. (2012). Is Gold a 'Safe-Haven'? - An Econometric Analysis. Procedia Economics and Finance, 1 (12), 24-33.
Bacon, C.R. (2004). Practical Portfolio Performance Measurement and Attribution. John Wiley & Sons, New Jersey.
Baur, D.G., Lucey, B.M. (2010). Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold. The Financial Review, 45, 217-229.
Baur, D.G., McDermott, T.K. (2010). Is gold a safe haven? International evidence. Journal of Banking and Finance, 34 (8), 1886-1898.
Ciner, C., Gurdgiev, C., Lucey, B.M. (2013). Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates. International Review of Financial Analysis, 29, 202-211.
Dębski, W. (2007). Rynek finansowy i jego mechanizmy. Podstawy teorii i praktyki. Wydawnictwo Naukowe PWN, Warszawa.
Hood, M., Malik, F. (2013). Is gold the best hedge and a safe haven under changing stock market volatility? Review of Financial Economics, 22 (2), 47-52.
Jajuga, K., Jajuga, T. (2006). Inwestycje. Instrumenty finansowe, aktywa niefinansowe, ryzyko finansowe, inżynieria finansowa. Wydawnictwo Naukowe PWN, Warszawa.
Joy, M. (2011). Gold and the US dollar: Hedge or haven? Finance Research Letters, 8 (3), 120-131.
Kopczewska, K., Kopczewski, T., Wójcik, P. (2009). Metody ilościowe. In: R. Aplikacje ekonomiczne i finansowe (I). CeDeWu.PL, Warszawa.
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7 (1), 77-91.
Potrykus, M. (2015). Investment in gold - safe haven, hedge or source of diversification for polish investor. Nauki o Finansach / Financial Sciences, 3 (24), 193-207.
Selmi, R., Mensi, W., Hammoudeh, S., Bouoiyour, J. (2018). Is Bitcoin a hedge, a safe haven or a diversifier for oil price movements? A comparison with gold. Energy Economics, 74, 787-801.
Sharpe, W.F. (1966). Mutual Fund Performance. The Journal of Business.
Śmiech, S., Papież, M. (2017). In search of hedges and safe havens: Revisiting the relations between gold and oil in the rolling regression framework. Finance Research Letters, 20, 238-244.
