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Does utilizing smart contracts induce a financial connectedness between Ethereum and non-fungible tokens?

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  • Gunay, Samet
  • Kaskaloglu, Kerem

Abstract

The majority of NFTs utilize the Ethereum blockchain platform to facilitate smart contracts. In this paper, we execute various econometric analyses to determine if this technical dependence induces a financial linkage to the risk, return, and prices of assets. For robustness, we also test the same relation between Bitcoin and NFTs. Empirical analyses are conducted through SADF bubbles test, DCC-GARCH time-varying correlation analysis, Bootstrap causality tests and spillover analysis. According to the results of various price, return, and volatility analyses, we find that NFTs do not demonstrate idiosyncratic features in their price developments and thus they cannot be considered as a separate asset class. Additionally, NFTs do not possess a specific financial linkage with Ethereum from using its infrastructure. Finally, we suggest NFT investors use alternative financial instruments, rather than Ether and Bitcoin in portfolio diversification, due to the presence of significant time-varying relationships and interactions.

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  • Gunay, Samet & Kaskaloglu, Kerem, 2022. "Does utilizing smart contracts induce a financial connectedness between Ethereum and non-fungible tokens?," Research in International Business and Finance, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:riibaf:v:63:y:2022:i:c:s0275531922001593
    DOI: 10.1016/j.ribaf.2022.101773
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    2. Umar, Zaghum & Usman, Muhammad & Choi, Sun-Yong & Rice, John, 2023. "Diversification benefits of NFTs for conventional asset investors: Evidence from CoVaR with higher moments and optimal hedge ratios," Research in International Business and Finance, Elsevier, vol. 65(C).
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    5. Shaen Corbet & John W. Goodell & Samet Gunay & Kerem Kaskaloglu, 2023. "Are DeFi tokens a separate asset class from conventional cryptocurrencies?," Annals of Operations Research, Springer, vol. 322(2), pages 609-630, March.

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