FINANCIAL RISK METER FOR CRYPTOCURRENCIES AND TAIL RISK NETWORK-BASED PORTFOLIO CONSTRUCTION

Rui Ren, Michael Althof and Wolfgang Karl Hã„rdle
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Rui Ren: IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany
Michael Althof: IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany
Wolfgang Karl Hã„rdle: IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany†School of Business, Singapore Management University, 50 Stamford Road, Singapore 178899‡Faculty of Mathematics and Physics, Charles University, Ke Karlovu 3, 121 16 Prague, Czech Republic§Department of Information Management and Finance, National Yang Ming Chiao Tung University, Taiwan

The Singapore Economic Review (SER), 2025, vol. 70, issue 04, 901-927

Abstract: Cryptocurrencies have emerged as a new asset class. In order to provide a thorough understanding of this new asset class, we study the dependencies in tail risk events within cryptocurrencies, and provide a hedging alternative in this paper. First, we adopt the Financial Risk Meter approach for cryptocurrencies, which is able to identify individual risk characteristics and indicate systemic risk in a network topology. Next, we detect the interdependencies across digital coins and study the spillover effects. Finally, we construct tail event sensitive portfolios and test the performance versus traditional approaches from January 2019 to May 2022.

Keywords: Cryptocurrencies; network dynamics; portfolio optimization; quantile regression; systemic risk; financial risk meter (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0217590822480010

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