Journal
INTERNATIONAL JOURNAL OF HOUSING MARKETS AND ANALYSIS
Volume 16, Issue 1, Pages 167-189Publisher
EMERALD GROUP PUBLISHING LTD
DOI: 10.1108/IJHMA-12-2021-0134
Keywords
Pakistan; Diversification; Real estate; Equity; US dollar; Oil and gold; G11; G15; F21; Q02
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This study compares the safe-haven properties of different asset markets against equity returns in Pakistan and utilizes wavelet coherence and wavelet VaR frameworks to analyze the data. The results show that the dependence between asset classes is weaker in the short-term and stronger in the long-term. The degree of co-movement between gold and equity returns greatly affects portfolio risk.
Purpose This study aims to compare the safe-haven properties of different asset markets such as gold, dollar, oil and disaggregated real estate sector (house, plot and residential) against equity returns in Pakistan over the monthly period of January 2011-December 2020. Design/methodology/approach The authors use wavelet coherence to encapsulate the overall dependence and correlation of asset classes. Further, the authors also study the potential of diversification at the tail of returns distribution by applying the wavelet value-at-risk (VaR) framework. Findings The results of wavelet coherence show that the dependence is weaker (stronger) in the short (long)-term investment horizon. Moreover, the findings of wavelet VaR reveal that the degree of co-movement between gold and equity returns greatly affects the portfolio risk followed by residential property and oil. Practical implications The findings are beneficial for the individual investor, fund managers and financial advisors looking for the optimal portfolio combination that hedges the excessive negative movements in equity returns subject to the heterogeneity in the investment horizon. Originality/value This is a primary effort to estimate safe-haven investments opportunities at a large spectrum, including disaggregated real estate sector against stock returns in Pakistan. Moreover, this study uses wavelet coherence and wavelet VaR which have an advantage over traditional analysis for diversification.
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