Time-frequency analysis of behaviourally classified financial asset markets

Maurice Omane-Adjepong, Kofi Agyarko Ababio and Imhotep Alagidede ()

Research in International Business and Finance, 2019, vol. 50, issue C, 54-69

Abstract: The paper examines market co-movement between pairs of international assets in the time and frequency spectrum. Using the cumulative prospect theory (CPT), twenty-one cryptocurrencies are classified into high and low assets, with three assets from each class making it into the final sample. We included in our analysis four major global equities. The empirical results indicate a highly connected market for the classified cryptocurrency pairs. Moreover, we found evidence of market differences to be much pronounced as global equities weakly co-move with the cryptocurrency markets. For the undiversified portfolio profitability analysis, the equities, particularly S&P500 unanimously outperformed the cryptocurrencies across all trading scales; whereas portfolio returns produced by PIVX emerged winner under the aggregate return series. Furthermore, the inclusion of CPT classified cryptocurrencies to diversified portfolios constituting international equities significantly affected the portfolio risk-return dynamics positively. Our findings provide intuitive and coherent investment strategies aimed at guiding investors with different market aspirations and risk-return appetite.

Keywords: Cryptocurrencies; Equities; Wavelet coherence; Co-movement; Cumulative Prospect theory; Portfolio diversification (search for similar items in EconPapers)
JEL-codes: C22 F21 G1 G32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:50:y:2019:i:c:p:54-69

DOI: 10.1016/j.ribaf.2019.04.012

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