Risk mitigation in a volatile US equity market: A comparative analysis of hedging with index futures and investing in gold as a safe haven
Risk mitigation in a volatile US equity market: A comparative analysis of hedging with index futures and investing in gold as a safe haven

Summary/Abstract: The aim of this paper is to compare two alternative strategies for protecting a US stock market portfolio against market risk during four major stock market crashes: the Global Financial Crisis, the European Sovereign Debt Crisis, the COVID-19 pandemic and the Russia-Ukraine war. Hedging with the S&P 500 index futures is compared with investing in gold as a safe haven based on the risk minimisation criterion. The effectiveness of the protection strategies is verified for portfolios that differ in terms of the number of constituents which range from single-asset to well-diversified portfolios. The results vary depending on the specific crisis, portfolio size and time horizon. However, hedging with index futures tended to provide more effective long-term protection, particularly for larger portfolios.

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