Hedge and safe haven role of commodities for the US and Chinese equity markets

Abstract

AbstractWe examine the hedge and safe‐haven properties of four commodity classes (precious metals, energy, agriculture and livestock) for the overall and sectoral equity markets of the US and China. In doing so, we employ two quantiles‐based approaches, quantile regression and cross‐quantilogram, using daily data from 25 September 2014 to 06 July 2020. The hedging effectiveness (HE) and time‐varying conditional diversification benefits (CDB) are estimated. Our findings indicate that precious metals and agricultural commodities are weak safe havens for all equity sectors of China and the United States. In contrast, energy and livestock commodities are weak safe havens only for the information technology and healthcare sectors. Precious metals show better HE, whereas all commodities offer strong CDB. Our findings may be helpful for sectoral investors offsetting equity losses by investing in various commodity classes.