Does volatility connectedness across major cryptocurrencies behave the same at different frequencies? A portfolio risk analysis
Date
2021
Authors
Mensi, W.
Al Yahyaee, K.H.
Wanas Al Jarrah, I.M.
Vo, X.V.
Kang, S.H.
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Journal article
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International Review of Economics and Finance, 2021; 76:96-113
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Abstract
This study investigates dynamic frequency connectedness for volatility differences among eight popular cryptocurrencies (Bitcoin, Ethereum, Litecoin, Dash, Monero, Ripple, Nem and Stellar). It employs the methodologies of Diebold and Yilmaz (2014; 2016) and Baruník and Křehlík (2018). Furthermore, an analysis of diversification benefits and downside risk reductions is carried out. The results demonstrated dynamic spillovers, which intensified after 2017. Furthermore, Bitcoin, Ethereum, and Litecoin are net transmitters of risk, which can be a contagion source; Dash, Ripple, Monero, Stellar, and Nem are net receivers of risk. Moreover, the short-term risk spillover is more pronounced than the medium- and long-term risk spillovers, which also increased after 2017. The directional spillovers among cryptocurrencies is sensitive to frequencies. Finally, adding a cryptocurrency to a benchmark Bitcoin portfolio provides diversification benefits and downside risk reductions. In contrast, adding Bitcoin to a cryptocurrency portfolio do not offers diversification opportunities.
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Copyright 2021 Elsevier