Can NFTs hedge the risk of traditional assets after the COVID-19 pandemic?

Wenting Zhang, Tiantian Liu, Yulian Zhang and Shigeyuki Hamori

The North American Journal of Economics and Finance, 2024, vol. 72, issue C

Abstract: Our study analyzes the dynamic spillover effects between the NFT market, Bitcoin market, oil market, gold futures market, S&P 500 stock index, bond market, and US dollar index over three time periods: the full sample period (2017/6/23–2022/9/2), before the COVID-19 outbreak (2017/6/23–2020/1/12), and after the COVID-19 outbreak (2020/1/13–2022/9/2) by employing the DCC-GARCH-based connectedness model. Furthermore, we apply the DCC-GARCH-t-Copula model, Risk Parity Portfolio (RPP) model, and Minimum Connectedness Portfolio (MCoP) model to evaluate the bilateral dynamic hedge ratios, portfolio weights, and the multivariate portfolio performance of these financial assets, respectively. Our findings suggest that NFTs are a source of volatility spillovers during both periods and that the COVID-19 outbreak accelerates the speed and intensity of volatility spillovers from NFTs to traditional financial markets. Moreover, most of the volatility spillovers from NFTs are caused by own shocks, which implies that NFTs are not susceptible to financial risk contagion. The results of bilateral portfolio analysis show that NFTs can effectively hedge other traditional financial assets when used as long positions. The results of multivariate portfolio analysis demonstrate that NFTs can also reduce investment risk despite their smaller weighting. In the two months after the COVID-19 outbreak, MCoP slightly outperforms RPP, although RPP outperforms MCoP in general.

Keywords: NFTs; Volatility spillover effect; Risk hedging; Multivariate portfolio (search for similar items in EconPapers)
JEL-codes: G01 G11 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:72:y:2024:i:c:s1062940824000743

DOI: 10.1016/j.najef.2024.102149

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