EconPapers    
Economics at your fingertips  
 

Are stablecoins truly diversifiers, hedges, or safe havens against traditional cryptocurrencies as their name suggests?

Gang-Jin Wang, Xin-yu Ma and Hao-yu Wu

Research in International Business and Finance, 2020, vol. 54, issue C

Abstract: We study the diversifier, hedge, and safe haven properties of stablecoins against traditional cryptocurrencies. Using the DCC-GARCH model and dummy variable regression, we examine the risk-dispersion abilities of USD-pegged and gold-pegged stablecoins against traditional cryptocurrencies, and also compare their risk-dispersion abilities with their underlying assets. The empirical results show that (i) stablecoins can serve as safe havens in specific situations, although most act merely as an effective diversifier in normal market conditions; (ii) gold-pegged stablecoins perform worse as safe havens than USD-pegged ones, but both of them perform better than their corresponding underlying assets, and (iii) the safe haven property of stablecoins changes across market conditions. The above results are robust when using time-varying copula models. We further evaluate the risk management applications of stablecoins by analyzing mixed cryptocurrency-stablecoin portfolios, finding evidence of USD-pegged stablecoins performing better than gold-pegged stablecoins in extreme risk reductions. Our work provides important insights into diversification for cryptocurrency investors.

Keywords: Cryptocurrency; Stablecoin; Safe haven; Hedge; Diversifier (search for similar items in EconPapers)
JEL-codes: C11 G11 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531919311146
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919311146

DOI: 10.1016/j.ribaf.2020.101225

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-12-18
Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919311146