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Cryptocurrencies and the downside risk in equity investments

Elie Bouri (), Brian Lucey () and David Roubaud

Finance Research Letters, 2020, vol. 33, issue C

Abstract: Unlike most of prior studies that consider the diversification ability of Bitcoin only, we consider other leading cryptocurrencies and study the time-varying diversification ability against equities and the portfolio implications. The analyses are based on daily data. Results suggest that Bitcoin, Ethereum, and Litecoin are hedges, especially against Asian Pacific and Japanese equities, with evidence of a time-variability in some cases. Further portfolio analyses indicate the benefit of hedging equities with cryptocurrencies in both in-sample and out-of-sample analyses. Specifically, the hedging effectiveness results point to diversification advantages for the hedged portfolios compared to unhedged (equity only) portfolios.

Keywords: Bitcoin; Cryptocurrency; MSCI equity indices; Diversifier; DCC; Quantiles (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318306342

DOI: 10.1016/j.frl.2019.06.009

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