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The Higher the Better? Hedging and Investment Strategies in Cryptocurrency Markets : Insights from Higher Moment Spillovers

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  • Xie He

    (Graduate School of Economics, Kobe University)

  • Shigeyuki Hamori

    (Graduate School of Economics, Kobe University)

Abstract

This study aims to investigate whether conditional higher moments offer additional and distinct information compared to lower moments in spillover effect analysis, and to examine their relevance for portfolio construction and hedging strategies. We employ the autoregressive conditional density (ACD) model to estimate the conditional skewness and kurtosis of nine major cryptocurrency markets. Furthermore, we explore the higher moment spillovers among these markets using the Diebold Yilmaz spillover approach. The results confirm that the magnitude and direction of spillover effects vary across different moments in the cryptocurrency market, each providing unique insights. Additionally, we find that although the spillover effects exhibit variations over different time periods and market conditions, the skewness spillover and kurtosis spillover, which track the transmission of downside (upside) risk and tail risk respectively, demonstrate similarities in their patterns. These variations differ noticeably from the changes observed in volatility spillover, which tracks the transmission of volatility risk. Finally, comparing the minimum connectedness portfolio (MCoP) based on different moment spillovers, we discover that the MCoP derived from higher moment spillovers exhibits superior hedge effectiveness and Sharpe ratios.

Suggested Citation

  • Xie He & Shigeyuki Hamori, 2023. "The Higher the Better? Hedging and Investment Strategies in Cryptocurrency Markets : Insights from Higher Moment Spillovers," Discussion Papers 2315, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:2315
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    2. Greenwood-Nimmo, Matthew & Steenkamp, Daan & Jaarsveld, Rossouw van, 2025. "Risk and return spillovers among developed and emerging market currencies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 98(C).
    3. He, Yiqi & Li, Zhihui & Wang, Xinyue & Chen, Xi, 2025. "Government investment, human capital flow, and urban innovation: Evidence from smart city construction in China," International Review of Financial Analysis, Elsevier, vol. 99(C).
    4. Ijaz, Muhammad Shahzad & Faff, Robert & Khurram, Mahrukh & Munir, Irfan, 2025. "Mapping complex interdependencies through higher order moments: Cross-market spillovers and shocks in BRICS," Finance Research Letters, Elsevier, vol. 79(C).
    5. He, Xie & Hamori, Shigeyuki, 2024. "Asymmetric Higher-Moment spillovers between sustainable and traditional investments," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 97(C).
    6. Wei, Xiaohui & Li, Jian & Li, Yuanhaocheng, 2025. "Institutional environment, credit risk expectations, and firms' investment strategies," Finance Research Letters, Elsevier, vol. 81(C).
    7. Helmi, Mohamad Husam & Cui, Jinxin & Elsayed, Ahmed H. & Hoque, Mohammad Enamul, 2025. "Higher-order moment and cross-moment spillovers among MENA stock markets: Insights from geopolitical risks and global fear," Research in International Business and Finance, Elsevier, vol. 77(PA).

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