Investigating the dynamic relationship between cryptocurrencies and conventional assets: Implications for financial investors

Lanouar Charfeddine, Noureddine Benlagha () and Youcef Maouchi

Economic Modelling, 2020, vol. 85, issue C, 198-217

Abstract: Cryptocurrencies are gradually establishing themselves as a new class of assets with unique features, although there remains skepticism and a lack of understanding of their nature. In this study, we compare the financial properties of these new digital assets and investigate their dynamic relationship with major financial securities and commodities. Furthermore, we evaluate the economic and financial potential benefits of cryptocurrencies for financial investors. Using different time-varying copula approaches and bivariate dynamic conditional correlation GARCH models, we find that the cross-correlation with conventional assets is changing over time but weak, supporting the idea that these cryptocurrencies can be suitable for financial diversification. However, our analysis of portfolios shows that cryptocurrencies are poor hedging instruments in most of the considered cases. Moreover, we find that the relationship between cryptocurrencies and conventional assets is sensitive to external economic and financial shocks.

Keywords: Bitcoin; Ethereum; Cryptocurrencies; Dynamic relationship; Diversification benefits; Hedging (search for similar items in EconPapers)
JEL-codes: C22 G01 G11 G14 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (95)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:85:y:2020:i:c:p:198-217

DOI: 10.1016/j.econmod.2019.05.016

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