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Unlocking the diversification benefits of DeFi for ASEAN stock market portfolios: a quantile study

Author

Listed:
  • Shoaib Ali

    (Université Internationale de Rabat
    Lebanese American University)

  • Youssef Manel

    (Elkhadra City)

Abstract

This study examines the return connectedness between decentralized finance (DeFi)’s and the Association of Southeast Asian Nations (ASEAN) stock markets using the quantile vector autoregressive framework, which allows us to investigate the connectedness at conditional quantiles. Our sample includes four major DeFi’s and six ASEAN stock markets, spanning from March 2018 to December 2022. The static results indicate a moderate level of return transmission between the system at mean and median quantile. This propagation increases substantially under extreme market conditions, establishing an asymmetric transmission across quantiles. Despite being a relatively new asset class, DeFi dominates the equity market and acts as the primary shock transmitter to the system in most instances. The dynamic analysis reveals that total system connectedness fluctuates over time and quantiles. The total system connectedness peaked during the COVID-19 and the Russia–Ukraine conflict period, indicating the impact of global events on system transmission. The optimal weight and hedge ratio estimated using the DCC-GARCH model indicate that DeFi is beneficial for portfolio construction and risk management. The rising trend in dynamic optimal weight and hedge ratio during the COVID-19 pandemic demonstrates that investors should decrease their investments in DeFi and increase hedging costs. Therefore, portfolio managers and investors should readjust their portfolio allocation in a timely manner according to different market states to build additional effective hedging and diversification strategies to avoid large losses and to reduce portfolio risk exposure.

Suggested Citation

  • Shoaib Ali & Youssef Manel, 2025. "Unlocking the diversification benefits of DeFi for ASEAN stock market portfolios: a quantile study," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-26, December.
    • Handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-024-00678-4
    DOI: 10.1186/s40854-024-00678-4
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    References listed on IDEAS

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    More about this item

    Keywords

    DeFi; Quantile VAR; ASEAN market; Diversification; Hedging;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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