Diamonds and Precious Metals for Reduction of Portfolio Tail Risk

Applied Economics, Forthcoming

Posted: 5 Dec 2019

See all articles by Massimiliano Barbi

Massimiliano Barbi

University of Bologna - Department of Management

Hélyette Geman

University of London - Economics, Mathematics and Statistics

Silvia Romagnoli

University of Bologna - Department of Statistics

Date Written: November 19, 2019

Abstract

We study the performance of diamonds compared to gold and other precious metals in mitigating the tail risk of a diversified equity market portfolio over the period June 2007 to October 2018. Our results display a diversification benefit of some diamond indices, which also improve the portfolio reward-to-risk ratio. To corroborate this evidence, we study the dependence structure and tail dependence of diamonds and a broad equity market portfolio and compare it to the dependence obtained with gold and other precious metals. Results from fitting a bivariate copula show that the average left tail dependence reaches its minimum when diamonds are used. We also show that using shares of diamond-mining companies does not provide the same benefits.

Keywords: Diamonds, Precious metals, Diversification, Copula functions, Tail dependence

JEL Classification: G10, G11

Suggested Citation

Barbi, Massimiliano and Geman, Helyette and Romagnoli, Silvia, Diamonds and Precious Metals for Reduction of Portfolio Tail Risk (November 19, 2019). Applied Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3490264

Massimiliano Barbi (Contact Author)

University of Bologna - Department of Management ( email )

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Bologna, 40126
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HOME PAGE: http://www.sites.google.com/site/massimilianobarbifinance/

Helyette Geman

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Silvia Romagnoli

University of Bologna - Department of Statistics ( email )

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