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Connectedness between cryptocurrencies and foreign exchange markets: Implication for risk management

Rahma Chemkha, Ahmed BenSaïda and Ahmed Ghorbel

Journal of Multinational Financial Management, 2021, vol. 59, issue C

Abstract: This paper examines the connectedness between cryptocurrencies and major fiat currencies in a multivariate framework using vine copulas. One of the advantages of this method is the flexibility in the choice of distributions used to model complex dependencies. The results show that the dependence, measured conditionally or unconditionally, is positive and higher for the pairs of the same market than those across markets. Moreover, a low significant dependency is found between cryptocurrencies and the main conventional currencies. Based on the Value-at-Risk (VaR) and expected shortfall (ES) analyses, vine copulas produce accurate risk measures by adding cryptocurrencies to a portfolio of fiat currencies.

Keywords: Cryptocurrency; Fiat currency; Dependence; Value at risk (search for similar items in EconPapers)
JEL-codes: F31 G11 G15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.mulfin.2020.100666

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