COMMODITIES & HEDGING IN THE PRESENCE OF GEOPOLITICAL TENSION

Abstract

This thesis extends on the work of Triki & Maatoug, (2021) and investigates the relationship between selected commodities and indices, in the presence of geopolitical tension, represented by the index of Caldara & Iacoviello (2022). By utilizing different multivariate regression approaches, namely the DCC-GARCH and Copula-GARCH, we examine the relationships both from an economical and statistical standpoint. The empirical results suggest that the S&P 500 correlates less with gold during periods of lowered tension, and conversely higher in the presence of higher tension. This further indicates gold as a good diversifier and safe haven for the S&P 500. We are not, however, able to find strong evidence nor patterns that allude to the same for oil and OBX, but evidence of oil working as a hedge for OBX is provided.