Time-varying dynamic conditional correlation between stock and cryptocurrency markets using the copula-ADCC-EGARCH model

Aviral Tiwari, Ibrahim Raheem and Sang Hoon Kang

Physica A: Statistical Mechanics and its Applications, 2019, vol. 535, issue C

Abstract: This study examines the time-varying correlations between six cryptocurrency and S&P 500 index markets using a copula-ADCC-EGARCH model. The increasing influence and usage of cryptocurrencies has led the notion in which it is regarded as risky assets. In order to maximize returns on investment, there must be hedging options to protect investors against potential risks. From empirical analysis, we find the overall time-varying correlations are very low, indicating that cryptocurrency serves as a hedge asset against the risk of S&P 500 stock market. We also show that volatilities respond more to negative shock as compared to positive shock in both markets. Furthermore, we identify Litecoin to be the most effective hedge asset against risk of S&P 500 index. Thus, we conclude that the cryptocurrency might be one of important elements in portfolio diversification.

Keywords: Cryptocurrencies; Stock markets; Asymmetric dynamic conditional correlation; Copula (search for similar items in EconPapers)
JEL-codes: C22 G10 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (49)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:535:y:2019:i:c:s0378437119313159

DOI: 10.1016/j.physa.2019.122295

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