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Connectedness between cryptocurrencies and foreign exchange markets: Implication for risk management

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  • Chemkha, Rahma
  • BenSaïda, Ahmed
  • Ghorbel, Ahmed

Abstract

This paper examines the connectedness between cryptocurrencies and major fiat currencies in a multivariate framework using vine copulas. One of the advantages of this method is the flexibility in the choice of distributions used to model complex dependencies. The results show that the dependence, measured conditionally or unconditionally, is positive and higher for the pairs of the same market than those across markets. Moreover, a low significant dependency is found between cryptocurrencies and the main conventional currencies. Based on the Value-at-Risk (VaR) and expected shortfall (ES) analyses, vine copulas produce accurate risk measures by adding cryptocurrencies to a portfolio of fiat currencies.

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  • Chemkha, Rahma & BenSaïda, Ahmed & Ghorbel, Ahmed, 2021. "Connectedness between cryptocurrencies and foreign exchange markets: Implication for risk management," Journal of Multinational Financial Management, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:mulfin:v:59:y:2021:i:c:s1042444x20300554
    DOI: 10.1016/j.mulfin.2020.100666
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    Cited by:

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    2. Mercik, Aleksander & Słoński, Tomasz & Karaś, Marta, 2024. "Understanding crypto-asset exposure: An investigation of its impact on performance and stock sensitivity among listed companies," International Review of Financial Analysis, Elsevier, vol. 92(C).
    3. Al-Shboul, Mohammad & Assaf, Ata & Mokni, Khaled, 2023. "Does economic policy uncertainty drive the dynamic spillover among traditional currencies and cryptocurrencies? The role of the COVID-19 pandemic," Research in International Business and Finance, Elsevier, vol. 64(C).
    4. Milunovich, George, 2022. "Assessing the connectedness between Proof of Work and Proof of Stake/Other digital coins," Economics Letters, Elsevier, vol. 211(C).
    5. Hanif, Waqas & Mensi, Walid & Vo, Xuan Vinh & BenSaïda, Ahmed & Hernandez, Jose Arreola & Kang, Sang Hoon, 2023. "Dependence and risk management of portfolios of metals and agricultural commodity futures," Resources Policy, Elsevier, vol. 82(C).
    6. Chemkha, Rahma & BenSaïda, Ahmed & Ghorbel, Ahmed & Tayachi, Tahar, 2021. "Hedge and safe haven properties during COVID-19: Evidence from Bitcoin and gold," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 71-85.
    7. Raza, Syed Ali & Ahmed, Maiyra & Aloui, Chaker, 2022. "On the asymmetrical connectedness between cryptocurrencies and foreign exchange markets: Evidence from the nonparametric quantile on quantile approach," Research in International Business and Finance, Elsevier, vol. 61(C).
    8. Bhuvaneskumar Annamalaisamy & Sivakumar Vepur Jayaraman, 2024. "Do cryptocurrencies integrate with the indices of equity, sustainability, clean energy, and crude oil? A wavelet coherency approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3372-3392, July.
    9. Tang, Tao & Wang, Yanchen, 2022. "Liquidity Shocks, Price Volatilities, and Risk-managed Strategy: Evidence from Bitcoin and Beyond," Journal of Multinational Financial Management, Elsevier, vol. 64(C).
    10. Díaz, Antonio & Esparcia, Carlos & López, Raquel, 2022. "The diversifying role of socially responsible investments during the COVID-19 crisis: A risk management and portfolio performance analysis," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 39-60.

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    More about this item

    Keywords

    Cryptocurrency; Fiat currency; Dependence; Value at risk;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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