The Dynamic Relationship of Volatilities and Hedging between Cryptocurrencies and Other Financial Assets

Pitipat Nittayakamolphun, Thanchanok Bejrananda and Panjamapon Pholkerd
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Thanchanok Bejrananda: Faculty of Economics, Maejo University, Thailand
Panjamapon Pholkerd: Faculty of Management Science, Buriram Rajabhat University, Thailand

Asian Journal of Applied Economics/ Applied Economics Journal, 2022, vol. 29, issue 1, 78-99

Abstract: Cryptocurrencies have created opportunities and challenges in investment as well as providing higher returnsthan other financial assets. Despite the unclear role and risks of cryptocurrencies, the opportunities they offer have attracted a number of investors to the crypto market. This study, thus, aims to analyze the dynamic relationship of volatilities and hedging between cryptocurrencies and other financial assets using Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH). The daily data span from August 2016 to December 2021. The result for volatilities showed a low dynamic correlation between cryptocurrencies and other financial assets and the ability to hedge minimal risk. Hence, investors should diversify the risk in their portfolios by investing in cryptocurrencies together with other financial assets without compromising the expected return.

Keywords: cryptocurrency; other financial assets; hedge (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2022
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