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Financial Risk Meter For Cryptocurrencies And Tail Risk Network-Based Portfolio Construction

Author

Listed:
  • RUI REN

    (IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany)

  • MICHAEL ALTHOF

    (IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany)

  • WOLFGANG KARL HÄRDLE

    (IRTG 1792, Humboldt-Universität zu Berlin, Unter den Linden, 610099 Berlin, Germany†School of Business, Singapore Management University, 50 Stamford Road, Singapore 178899‡Faculty of Mathematics and Physics, Charles University, Ke Karlovu 3, 121 16 Prague, Czech Republic§Department of Information Management and Finance, National Yang Ming Chiao Tung University, Taiwan)

Abstract

Cryptocurrencies have emerged as a new asset class. In order to provide a thorough understanding of this new asset class, we study the dependencies in tail risk events within cryptocurrencies, and provide a hedging alternative in this paper. First, we adopt the Financial Risk Meter approach for cryptocurrencies, which is able to identify individual risk characteristics and indicate systemic risk in a network topology. Next, we detect the interdependencies across digital coins and study the spillover effects. Finally, we construct tail event sensitive portfolios and test the performance versus traditional approaches from January 2019 to May 2022.

Suggested Citation

  • Rui Ren & Michael Althof & Wolfgang Karl Hã„Rdle, 2025. "Financial Risk Meter For Cryptocurrencies And Tail Risk Network-Based Portfolio Construction," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 70(04), pages 901-927, June.
    • Handle: RePEc:wsi:serxxx:v:70:y:2025:i:04:n:s0217590822480010
    DOI: 10.1142/S0217590822480010
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