Do cryptocurrencies provide better hedging? Evidence from major equity markets during COVID-19 pandemic

Maitra, Debasish; Rehman, Mobeen Ur; Dash, Saumya Ranjan; Kang, Sang Hoon

doi:10.1016/j.najef.2022.101776

Cited by 29 publications

(25 citation statements)

References 26 publications

(44 reference statements)

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“…2, 2022 As it is evident from table 2, Ethereum has a significant high degree correlation with Chainlink, Tezos and MANA. Ethereum shows higher significantly positive correlations with the US stock market, this result being in line with the findings by Maitra et al (2022). The commodity investment has a low to moderate degree of correlation with all other investment opportunities.…”

Section: Resultssupporting

confidence: 88%

Investment in Virtual Digital Assets Vis-A-Vis Equity Stock and Commodity: A Post-Covid Volatility Analysis

Sharma

Rawat

Kaur³

2022

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Virtual digital assets including cryptocurrencies, non-fungible tokens and decentralized financial asset have been initially used as an alternative currency but are currently being purchased as an asset and hedging instruments. Exponentially growing trading volume witnesses the growing inclination of investors towards these assets, and this calls for volatility analysis of these assets. In this reference, the present study assessed and compared the volatility of returns from investment in virtual digital assets, equity and commodity market. Daily closing prices of selected cryptocurrencies, non-fungible tokens and decentralized financial assets, stock indices and commodities have been analysed for the post-covid period. Since returns were observed to be heteroscedastic, autoregressive conditional heteroscedastic models have been used to assess the volatility. The results indicate a low correlation of commodity investment with all other investment opportunities. Also, Tether and Dai have been observed to be negatively correlated with stock market. This indicates the possibility of minimizing risk through portfolio diversification. In terms of average returns, virtual digital assets are discerned to be better options than equity stock or commodity yet the variance scenario of these investment avenues is not very rosy. The volatility parameters reveal that unlike commodity market, virtual digital assets have got a significant impact of external shocks in the short-run. Further, the long run persistency of shocks is observed to be higher for the UK stock market, followed by Ethereum, Tether and Dai. The present analysis is crucial as the decision about its acceptance as legal tender money is still sub-judice in some countries. The results are expected to provide insight to regulatory bodies about these assets.

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Section: Resultssupporting

confidence: 88%

Investment in Virtual Digital Assets Vis-A-Vis Equity Stock and Commodity: A Post-Covid Volatility Analysis

Sharma

Rawat

Kaur³

2022

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“…In recent years, the issues of cryptocurrency market contagion, market uncertainty, and market complexity, combined with elevated volatility in major traditional markets, have attracted much interest from academic researchers and market practitioners (Antonakakis et al 2019 ; Xu et al 2019 ; Umar and Gubareva 2020 ; Bouri et al 2021 ; Sebastião and Godinho 2021 ; Fang et al 2022 ; Ghorbel et al 2022 ; Maghyereh and Abdoh 2022 ; Mandaci and Cagli 2022 ; Ren and Lucey 2022 ; Salisu and Ogbonna 2022 ; Umar et al 2022a ; Bossman and Gubareva 2023 ; Yousaf et al 2023 ). One prominent area of research in this field centers on the risk spillover between cryptocurrencies and traditional financial markets, with a particular focus on new avenues for hedging and diversification opportunities in both directions (Hsu et al 2021 ; Zhang and He 2021 ; Attarzadeh and Balcilar 2022 ; Maitra et al 2022 ; Yousaf et al 2022 ; Bossman et al 2023a , b ).…”

Section: Introductionmentioning

confidence: 99%

Tail spillover effects between cryptocurrencies and uncertainty in the gold, oil, and stock markets

Mensi

Gubareva

et al. 2023

Financ Innov

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This study investigates tail dependence among five major cryptocurrencies, namely Bitcoin, Ethereum, Litecoin, Ripple, and Bitcoin Cash, and uncertainties in the gold, oil, and equity markets. Using the cross-quantilogram method and quantile connectedness approach, we identify cross-quantile interdependence between the analyzed variables. Our results show that the spillover between cryptocurrencies and volatility indices for the major traditional markets varies substantially across quantiles, implying that diversification benefits for these assets may differ widely across normal and extreme market conditions. Under normal market conditions, the total connectedness index is moderate and falls below the elevated values observed under bearish and bullish market conditions. Moreover, we show that under all market conditions, cryptocurrencies have a leadership influence over the volatility indices. Our results have important policy implications for enhancing financial stability and deliver valuable insights for deploying volatility-based financial instruments that can potentially provide cryptocurrency investors with suitable hedges, as we show that cryptocurrency and volatility markets are insignificantly (weakly) connected under normal (extreme) market conditions.

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“…In addition, it was found that Bitcoin is a safe haven for investors during the COVID-19 pandemic [34] . In contrary, it was found that during the COVID-19 pandemic, cryptocurrencies do not help in hedging the risk of stock markets [18] and do not offer diversification [22] . Besides, it was found that Tether is a safe haven for oil and Bitcoin mixed with any allocation [33] and that crude oil and gold makets are safe havens for Bitcoin market during the pandemic [34] .…”

Section: Discussionmentioning

confidence: 98%

“…Recall that studies in [18] , [21] , [22] , [23] , [33] , [34] used one to three cryptocurrencies. We believe that since our results are statistically robust due to the large number of cryptocurrencies considered in our study (for instance, 35 cryptocurrencies), our findingds are statistically significant and indicate that reduction in complexity in prices and volumes of cryptocurrencies during the pandemic increases the level of predictibility of cryptocurrencies during the pandemic.…”

Section: Discussionmentioning

confidence: 99%

“…For instance, the authors in [17] concluded that the government interventions; measured by Oxford COVID-19 Government Response Tracker; have negative impact on the cryptocurrency market and that the optimal portfolio during the COVID-19 is composed of Dogecoin cryptocurrency and oil markets. In [18] , it was found that the COVID-19 pandemic caused an increase in the risk transmission from Bitcoin and Ethereum to international stock market returns and a reduction in the cost of hedging. In [19] , the authors concluded that the coronavirus media coverage significantly affects herding amid investors in cryptocurrency markets.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

The effect of the COVID-19 pandemic on multifractals of price returns and trading volume variations of cryptocurrencies

Lahmiri

2023

Decision Analytics Journal

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Do cryptocurrencies provide better hedging? Evidence from major equity markets during COVID-19 pandemic

Cited by 29 publications

References 26 publications

Investment in Virtual Digital Assets Vis-A-Vis Equity Stock and Commodity: A Post-Covid Volatility Analysis

Investment in Virtual Digital Assets Vis-A-Vis Equity Stock and Commodity: A Post-Covid Volatility Analysis

Tail spillover effects between cryptocurrencies and uncertainty in the gold, oil, and stock markets

The effect of the COVID-19 pandemic on multifractals of price returns and trading volume variations of cryptocurrencies

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