The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis

The aim of this article is to find diversification opportunities by examining the time-varying and time-scale-based volatility and correlation of the US and Chinese stock market indices with crude oil, gold and Bitcoin price returns, as well as the exchange rate of the Chinese Yuan Renminbi agains...

Full description

Saved in:
Bibliographic Details
Main Authors: Abdullah, Ahmad Monir, Abdul Wahab, Hishamuddin, Mohammed Masih, Abul Mansur, Abdul Majid, Mariani, Wong, Wai-Yan
Format: Article
Language:English
Published: Universiti Utara Malaysia Press 2023
Subjects:
Online Access:https://repo.uum.edu.my/id/eprint/29731/1/JIS%2019%2001%202023%201-35.pdf
https://doi.org/10.32890/jis2023.19.1.1
https://repo.uum.edu.my/id/eprint/29731/
https://e-journal.uum.edu.my/index.php/jis/article/view/14450
https://doi.org/10.32890/jis2023.19.1.1
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Universiti Utara Malaysia
Language: English
id my.uum.repo.29731
record_format eprints
spelling my.uum.repo.297312023-09-06T15:34:19Z https://repo.uum.edu.my/id/eprint/29731/ The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis Abdullah, Ahmad Monir Abdul Wahab, Hishamuddin Mohammed Masih, Abul Mansur Abdul Majid, Mariani Wong, Wai-Yan JZ International relations The aim of this article is to find diversification opportunities by examining the time-varying and time-scale-based volatility and correlation of the US and Chinese stock market indices with crude oil, gold and Bitcoin price returns, as well as the exchange rate of the Chinese Yuan Renminbi against the US Dollar (CNY/USD) using a vector error correction model (VECM), namely, maximum overlap discrete wavelet transformation (MODWT). Furthermore, individual and institutional investors may also reduce the risk of their investment portfolio by investing in commodities and stock markets from countries with a negative or substantially low correlation. Our VECM result shows that Bitcoin, crude oil and CNY/USD lead the other variables under consideration, indicating that changes in the prices of Bitcoin, crude oil and CNY/USD affect the US and Chinese stock market indices, as well as gold. Our research utilising the MODWT technique shows that Bitcoin leads crude oil at almost all levels, indicating that crude oil prices will respond to Bitcoin price movement in the long and medium term. However, investors may be deterred from using Bitcoin as a diversification tool due to its extreme volatility. The research also indicates that diversification with gold may help US investors. However, the continuous wavelet transformation finding shows that the diversification benefit effects will persist for a holding period of little more than 64 days. Our study results tend to emphasise the significance of using reasonably modern methods to identify diversification possibilities for investors with diverse investment horizons or holding stocks for various periods. Universiti Utara Malaysia Press 2023 Article PeerReviewed application/pdf en cc4_by https://repo.uum.edu.my/id/eprint/29731/1/JIS%2019%2001%202023%201-35.pdf Abdullah, Ahmad Monir and Abdul Wahab, Hishamuddin and Mohammed Masih, Abul Mansur and Abdul Majid, Mariani and Wong, Wai-Yan (2023) The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis. Journal of International Studies (JIS), 19 (1). pp. 1-35. ISSN 1823-691X https://e-journal.uum.edu.my/index.php/jis/article/view/14450 https://doi.org/10.32890/jis2023.19.1.1 https://doi.org/10.32890/jis2023.19.1.1
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutional Repository
url_provider http://repo.uum.edu.my/
language English
topic JZ International relations
spellingShingle JZ International relations
Abdullah, Ahmad Monir
Abdul Wahab, Hishamuddin
Mohammed Masih, Abul Mansur
Abdul Majid, Mariani
Wong, Wai-Yan
The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
description The aim of this article is to find diversification opportunities by examining the time-varying and time-scale-based volatility and correlation of the US and Chinese stock market indices with crude oil, gold and Bitcoin price returns, as well as the exchange rate of the Chinese Yuan Renminbi against the US Dollar (CNY/USD) using a vector error correction model (VECM), namely, maximum overlap discrete wavelet transformation (MODWT). Furthermore, individual and institutional investors may also reduce the risk of their investment portfolio by investing in commodities and stock markets from countries with a negative or substantially low correlation. Our VECM result shows that Bitcoin, crude oil and CNY/USD lead the other variables under consideration, indicating that changes in the prices of Bitcoin, crude oil and CNY/USD affect the US and Chinese stock market indices, as well as gold. Our research utilising the MODWT technique shows that Bitcoin leads crude oil at almost all levels, indicating that crude oil prices will respond to Bitcoin price movement in the long and medium term. However, investors may be deterred from using Bitcoin as a diversification tool due to its extreme volatility. The research also indicates that diversification with gold may help US investors. However, the continuous wavelet transformation finding shows that the diversification benefit effects will persist for a holding period of little more than 64 days. Our study results tend to emphasise the significance of using reasonably modern methods to identify diversification possibilities for investors with diverse investment horizons or holding stocks for various periods.
format Article
author Abdullah, Ahmad Monir
Abdul Wahab, Hishamuddin
Mohammed Masih, Abul Mansur
Abdul Majid, Mariani
Wong, Wai-Yan
author_facet Abdullah, Ahmad Monir
Abdul Wahab, Hishamuddin
Mohammed Masih, Abul Mansur
Abdul Majid, Mariani
Wong, Wai-Yan
author_sort Abdullah, Ahmad Monir
title The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
title_short The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
title_full The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
title_fullStr The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
title_full_unstemmed The Co-Movement of China and US Stock Indices: A Portfolio Diversification Analysis
title_sort co-movement of china and us stock indices: a portfolio diversification analysis
publisher Universiti Utara Malaysia Press
publishDate 2023
url https://repo.uum.edu.my/id/eprint/29731/1/JIS%2019%2001%202023%201-35.pdf
https://doi.org/10.32890/jis2023.19.1.1
https://repo.uum.edu.my/id/eprint/29731/
https://e-journal.uum.edu.my/index.php/jis/article/view/14450
https://doi.org/10.32890/jis2023.19.1.1
_version_ 1778165220187832320