Does volatility connectedness across major cryptocurrencies behave the same at different frequencies? A portfolio risk analysis

Walid Mensi, Khamis Hamed Al-Yahyaee, Idries Mohammad Wanas Al-Jarrah, Xuan Vinh Vo and Sang Hoon Kang

International Review of Economics & Finance, 2021, vol. 76, issue C, 96-113

Abstract: This study investigates dynamic frequency connectedness for volatility differences among eight popular cryptocurrencies (Bitcoin, Ethereum, Litecoin, Dash, Monero, Ripple, Nem and Stellar). It employs the methodologies of Diebold and Yilmaz (2014; 2016) and Baruník and Křehlík (2018). Furthermore, an analysis of diversification benefits and downside risk reductions is carried out. The results demonstrated dynamic spillovers, which intensified after 2017. Furthermore, Bitcoin, Ethereum, and Litecoin are net transmitters of risk, which can be a contagion source; Dash, Ripple, Monero, Stellar, and Nem are net receivers of risk. Moreover, the short-term risk spillover is more pronounced than the medium- and long-term risk spillovers, which also increased after 2017. The directional spillovers among cryptocurrencies is sensitive to frequencies. Finally, adding a cryptocurrency to a benchmark Bitcoin portfolio provides diversification benefits and downside risk reductions. In contrast, adding Bitcoin to a cryptocurrency portfolio do not offers diversification opportunities.

Keywords: Cryptocurrency markets; Dynamic spillovers; Connectedness network; Frequency-domain space; Diversification analysis (search for similar items in EconPapers)
JEL-codes: C58 F37 G14 G15 Q31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:76:y:2021:i:c:p:96-113

DOI: 10.1016/j.iref.2021.05.009

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