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The Dynamic Relationship of Volatilities and Hedging between Cryptocurrencies and Other Financial Assets

Author

Listed:
  • Nittayakamolphun, Pitipat

    (Faculty of Management Science, Buriram Rajabhat University, Thailand)

  • Bejrananda, Thanchanok

    (Faculty of Economics, Maejo University, Thailand)

  • Pholkerd, Panjamapon

    (Faculty of Management Science, Buriram Rajabhat University, Thailand)

Abstract

Cryptocurrencies have created opportunities and challenges in investment as well as providing higher returnsthan other financial assets. Despite the unclear role and risks of cryptocurrencies, the opportunities they offer have attracted a number of investors to the crypto market. This study, thus, aims to analyze the dynamic relationship of volatilities and hedging between cryptocurrencies and other financial assets using Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH). The daily data span from August 2016 to December 2021. The result for volatilities showed a low dynamic correlation between cryptocurrencies and other financial assets and the ability to hedge minimal risk. Hence, investors should diversify the risk in their portfolios by investing in cryptocurrencies together with other financial assets without compromising the expected return.

Suggested Citation

  • Nittayakamolphun, Pitipat & Bejrananda, Thanchanok & Pholkerd, Panjamapon, 2022. "The Dynamic Relationship of Volatilities and Hedging between Cryptocurrencies and Other Financial Assets," Asian Journal of Applied Economics/ Applied Economics Journal, Kasetsart University, Faculty of Economics, Center for Applied Economic Research, vol. 29(1), pages 78-99, June.
    • Handle: RePEc:ris:apecjn:0067
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    More about this item

    Keywords

    cryptocurrency; other financial assets; hedge;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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