Risk and return analysis between digital and conventional financial assets in a turbulent geopolitical environment

Mirzat Ullah ()
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Mirzat Ullah: Ural Federal University

Digital Finance, 2025, vol. 7, issue 3, No 5, 479-505

Abstract: Abstract This study examines the risk-and-return analysis between digital and conventional financial assets during financial crises using daily data from 02/06/2017 to 06/30/2024 covering the contagion effects of all recent financial crises under bearish, normal, and bullish markets. To evaluate volatility risk spillover effects among the underlined assets, this study employed Cross-Quantilogram and Time-varying Parameter Vector Autoregressive (TVP-VAR) estimation. This study introduced geopolitical risk shocks (GPRS) as a novel factor to assess the influence of exogenous shocks in Russian financial market. The findings highlight that the GPRS is the reason of economic destruction further, finding from TVP-VAR guide investors in portfolio creating to include crypto-currency due to its higher potential to mitigate the market risk. This study witnessed that government bonds, crude oil, and foreign exchange reserves are the most affected instruments from GPRS, while digital assets and precious metals found strong hedger, particularly during periods of heightened market volatility triggered by crises. The traditional assets, such as equity indices, crude oil, and precious metals, have an important role in total risk diversification while gild found as a safe haven asset during crises. For validation and cross-checking of the finding, this study used a robust methodology of Quantile Wavelet Coherence model that guides investors to set informed investment decisions for using risk diversification, hedging, and safe haven investment strategies. The findings offer valuable insights for investors and policy-makers in establishing practical strategic asset allocation policy to enhance risk management and optimize portfolio performance.

Keywords: Risk management strategies; Risk–return analysis; Investor behavior; Diversification; Hedging and safe haven strategies; Financial crisis impacts (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s42521-025-00147-2

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