Oil assets and portfolio diversification: Firm-level analysis for Borsa Istanbul

OpenAlex · İngilizce

In this paper, we investigate volatility spillovers between oil prices and the stock prices of the companies listed in Borsa Istanbul. We employ the dynamic conditional correlation (DCC) and Baba, Engle, Kraft, and Kroner (BEKK) GARCH models using daily data for the period between June 22, 2015, and January 16, 2020. In addition, we determine portfolio weights and hedge ratios to suggest optimal portfolios for investors and portfolio managers. We find significant volatility spillovers from oil markets to the stocks of chemical, petroleum, real estate and construction, textile, food and paper, and wholesale companies. Our analysis of the optimal portfolio weights indicate that oil assets provide diversification benefits, and the hedge ratios show that it is possible to determine optimal hedging strategies at a low cost. Our hedging effectiveness analysis proves the importance of oil assets for portfolios including holding, real estate and construction, textile, food, and paper companies’ stocks.