Cryptocurrencies: Hedging Opportunities From Domestic Perspectives in Southeast Asia Emerging Markets

Didik Susilo, Sugeng Wahyudi, Irene Rini Demi Pangestuti, Bayu Adi Nugroho and Robiyanto Robiyanto

SAGE Open, 2020, vol. 10, issue 4, 2158244020971609

Abstract: Previous studies have shown that cryptocurrencies could hedge equities. However, most of those studies did not take into account the recent cryptocurrencies bubbles in 2018 and domestic currencies. Therefore, this research aimed to study whether the hedge effectiveness of cryptocurrencies still exists. This research used five cryptocurrencies (bitcoin, ethereum, monero, ripple, and litecoin), equity indices (Indonesia, Malaysia, Vietnam, Thailand, and the Philippines), and iShares ETF MSCI World (developed world). Commodities-based hedging using iShares S&P GSCI Commodity-Indexed Trust was also analyzed as a comparison. The asymmetric generalized dynamic conditional correlation (AG-DCC) GARCH showed that one cryptocurrency could not significantly and consistently hedge equities while five equally weighted cryptocurrencies could marginally hedge equities. Meanwhile, the classical minimum variance model also showed that the hedge effectiveness of cryptocurrencies was insignificantly positive. Equity traders could add cryptocurrencies into portfolios when the purpose was to maximize the Sharpe ratio instead of hedging. Overall, commodities were the better hedge for Southeast Asia emerging markets.

Keywords: cryptocurrency; AG-DCC-GARCH; hedge ratio; mean-variance portfolio; Southeast Asia emerging markets (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:sagope:v:10:y:2020:i:4:p:2158244020971609

DOI: 10.1177/2158244020971609

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