Discovering Interlinkages Between Major Cryptocurrencies Using High-Frequency Data: New Evidence from COVID-19 Pandemic

Imran Yousaf () and Shoaib Ali
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Imran Yousaf: Prince Sultan University
Shoaib Ali: Air University

A chapter in Blockchain, Crypto Assets, and Financial Innovation, 2025, pp 355-377 from Springer

Abstract: Abstract Through the application of the VAR-AGARCH model to intra-day data for three cryptocurrencies (Bitcoin, Ethereum, and Litecoin), this study examines the return and volatility spillover between these cryptocurrencies during the pre-COVID-19 period and the COVID-19 period. We also estimate the optimal weights, hedge ratios, and hedging effectiveness during both sample periods. We find that the return spillovers vary across the two periods for the Bitcoin-Ethereum, Bitcoin-Litecoin, and Ethereum-Litecoin pairs. However, the volatility transmissions are found to be different during the two sample periods for the Bitcoin-Ethereum and Bitcoin-Litecoin pairs. The constant conditional correlations between all pairs of cryptocurrencies are observed to be higher during the COVID-19 period compared to the pre-COVID-19 period. Based on optimal weights, investors are advised to decrease their investments (a) in Bitcoin for the portfolios of Bitcoin/Ethereum and Bitcoin/Litecoin and (b) in Ethereum for the portfolios of Ethereum/Litecoin during the COVID-19 period. All hedge ratios are found to be higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. Last, the hedging effectiveness is higher during the COVID-19 period compared to the pre-COVID-19 period. Overall, these findings provide useful information to portfolio managers and policymakers regarding portfolio diversification, hedging, forecasting, and risk management.

Keywords: Return spillover; Volatility spillover; Cryptocurrencies; Optimal weights; Hedge ratios; Hedging effectiveness; COVID-19; C58; G01; G11; G12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-96-6839-7_13

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DOI: 10.1007/978-981-96-6839-7_13

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