The impact of COVID-induced shock on the risk-return correspondence of agricultural ETFs

Abstract

Risk-return correspondence for different investment asset classes forms one of the pillars of modern portfolio management. This correspondence together with interdependency analysis allows us to create portfolios that are adequate to given goals and constraints. COVID-induced shock unexpectedly generated high uncertainty and turmoil. Our paper is devoted to the investigation path through shock by agricultural assets (presented by ETFs) in comparison with traditional assets. There were identified three time periods: before the shock, explicitly shock, and post-shock. At the explicit shock period was suggested estimation risk frameworks on the pair indicators: falling depth and recovery ratio. Basic attention focuses on comparison risk-return estimations prior to shock and post-shock. To this end was considered four approaches to risk measurement and were applied to the sample of agricultural ETFs. The results indicated differences in risk changing by the path from before shock to post- shock. Differences arise from choosing the approach of risk measuring. The variability approach reveals much growth of risk of traditional assets, but the Value-at-Risk approach indicates higher risk growth for agricultural ETFs. Combine together with relatively low correlation these estimations provide a clear vision of risk-return frameworks.