Rebalancing Portfolios in Periods of Stress in the Global Economy: Capital Markets vs.WTI, XAU, XAG, XPT
Rebalancing Portfolios in Periods of Stress in the Global Economy: Capital Markets vs.WTI, XAU, XAG, XPT

Author(s): Nicole Horta, Mariana Chambino, Rui Dias
Subject(s): Social Sciences, Economy
Published by: Udruženje ekonomista i menadžera Balkana
Keywords: Capital markets; Commodities; Financial integration; Portfolio diversification
Summary/Abstract: The purpose of this paper is to estimate whether portfolio diversification is feasible in the capital markets of the Netherlands (AEX), France (CAC 40), Germany (DAX 30), Canada (FTSE 100), Italy (FTSE MIB), Spain (IBEX 35), Russia (IMOEX), and the commodities oil (WTI), silver (XAG), gold (XAU), and platinum (XPT) from January 1st, 2018, to December 31st, 2022. The goal of this analysis is to answer the following question, namely to know if: i) the 2020 and 2022 events accentuated the integration between capital markets and commodities (WTI), silver (XAG), gold (XAU), and platinum (XPT)? The results show that during the Tranquil period, the markets present 41 integrations (in 110 possible), with the French price index (CAC 40) integrating the most with its peers, with 8 integrations (in 10 possible), while the commodities markets present the lowest integrations, with silver (XAG) presenting the most relevant number of integrations (2 in 10 possible) and platinum (XPT) showing only 1 integration (in 10 possible). Oil (WTI) and gold (XAU) have not integrated with any of their peers during this period of tranquillity. During the period of the 2020 and 2022 events, there were 60 integrations in 110 possible. According to the results and when compared to the previous sub-period, the capital mar¬kets maintained/decreased the same number of integrations with their peers. Silver (XAG) and platinum (XPT) also showed an increase in the number of integrations. XAG exhibited 5 integrations (out of a possible 10), whereas platinum (XPT) had 7 integrations (out of 10 possible). Gold (XAU) was the only commodity that remained completely segmented from both the capital markets and the commodities under consideration. To answer the diversification question, there is evidence that the gold market (XAU) exhibits safe-haven characteristics during the 2020 and 2022 events; these findings are relevant for individual and institutional investors operating in these financial markets.

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