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U.S Stock Market and Cryptocurrencies During the COVID-19 Pandemic Outbreak

Mohamed Yousfi, Younes Ben Zaied () and Youssef Tliche
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Mohamed Yousfi: University of Sousse
Younes Ben Zaied: EDC Paris Business School
Youssef Tliche: EM Normandie Business School

Chapter Chapter 10 in Crises and Uncertainty in the Economy, 2022, pp 171-186 from Springer

Abstract: Abstract This paper investigates the dynamic correlation and hedge ratio between S&P500 index and 4 major cryptocurrencies (Bitcoin, Litecoin, Ethereum and Tether), applying the M-GARCH model and using daily data July 5, 2015 to October 12, 2020. We show that the dynamic conditional correlation within market pairs is positive, which supports the contagion effects. However, in some periods, though short, the conditional correlation is low or negative for some pairs, indicating that portfolio managers and investors must earn more gain from a portfolio diversification strategy. The hedging analysis show that the most optimal hedge ratio between the couple pairs increase during the COVID-19 period compared to the pre-COVID-19 period. Moreover, the hedging effectiveness also show a rise during the pandemic compared to the pre-COVID-19 period and we found that the Ethereum has the highest hedging effectiveness followed by the Bitcoin. This findings may have important implications for investors to mitigate their exposure to the risk within their portfolio construction.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-19-3296-0_10

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DOI: 10.1007/978-981-19-3296-0_10

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