“Small things matter most”: The spillover effects in the cryptocurrency market and gold as a silver bullet

Toan Huynh (), Muhammad Ali Nasir, Xuan Vinh Vo and Thong Trung Nguyen

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: The cryptocurrencies with small market capitalization are often overlooked despite they can potentially be the source of shocks to other cryptocurrencies in the market. To address this caveat, this paper attempts to investigate the spillover effects among 14 cryptocurrencies by employing transfer entropy. Our results suggest that among different types of cryptos, Bitcoin is still the most appropriate instrument for hedging, while Tether (USDT) which have a strong anchor with the US dollar is significantly volatile. Interestingly, we document that the small coins are more likely to be shock creators in the cryptocurrency market. Using the same approach, we further explored the link between gold prices and cryptocurrency prices. The results show that gold could be a good hedging instrument for cryptocurrencies due to its independence. In light of empirical results, it is advisable to carefully consider the coins with small capitalization. Further, investors should conduct portfolio rebalancing by including gold to hedge against the unexpected movement in the cryptocurrency market. Our paper not only contributes in terms of the application of advanced empirical methodology but also provides evidence on idiosyncratic features of the cryptocurrency market.

Keywords: Spillover effects; Cryptocurrency; Transfer entropy; Gold (search for similar items in EconPapers)
JEL-codes: G12 G15 G23 Q02 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301716

DOI: 10.1016/j.najef.2020.101277

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