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Volatility connectedness and portfolio optimization: DeFi, green crypto, and fossil fuel energy markets amid COVID-19, Russia-Ukraine, and 2023 banking crises

Author

Listed:
  • Oben, Remy Jonkam
  • Zhakanova Isiksal, Aliya
  • Faisal, Faisal

Abstract

This study aims to analyze volatility connectedness and optimal portfolio allocation strategies across decentralized finance (DeFi) tokens, green cryptocurrencies, and fossil-fuel commodities from March 15, 2018, to March 06, 2025. The study employs the Diebold-Yilmaz, Dynamic Conditional Correlations Generalized Auto-Regressive Conditional Heteroscedasticity (DCC-GARCH), and Dynamic Equicorrelation (DECO)-GARCH models. Results of the study show that DeFi-only (fossil fuel commodity-only) portfolios exhibit relatively more (less) substantial volatility connections and moderately positive (zero or very weakly positive) conditional correlations. In green cryptocurrency portfolios, volatility transmissions (conditional correlations) are generally substantial (strongly positive). Moreover, in DeFi token-green cryptocurrency (green cryptocurrency/DeFi token-fossil fuel commodity) portfolios, volatility connections are relatively more (less) substantial and conditional correlations are moderately positive (zero or very weak) predominantly. Overall, the total volatility spillover rate among the instruments is 40.4%, with the crypto instruments (DeFi assets and green cryptocurrencies) significantly contributing more to volatility transmission than fossil fuel commodities. Generally, fossil fuel commodities and DeFi tokens (green cryptocurrencies) are net volatility receivers (transmitters). Regarding optimal portfolio allocations, fossil fuel commodities receive larger weights than crypto instruments in mixed portfolios. The global pandemic, Russia-Ukraine dispute, and 2023 banking sector turmoil significantly impacted volatility spillovers and portfolio optimization across these asset classes. Given these results, this study offers actionable recommendations for investors, portfolio managers, policymakers, and regulators.

Suggested Citation

  • Oben, Remy Jonkam & Zhakanova Isiksal, Aliya & Faisal, Faisal, 2026. "Volatility connectedness and portfolio optimization: DeFi, green crypto, and fossil fuel energy markets amid COVID-19, Russia-Ukraine, and 2023 banking crises," The North American Journal of Economics and Finance, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:ecofin:v:84:y:2026:i:c:s1062940826000550
    DOI: 10.1016/j.najef.2026.102633
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