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Cryptocurrencies and the downside risk in equity investments

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Listed:
  • Bouri, Elie
  • Lucey, Brian
  • Roubaud, David

Abstract

Unlike most of prior studies that consider the diversification ability of Bitcoin only, we consider other leading cryptocurrencies and study the time-varying diversification ability against equities and the portfolio implications. The analyses are based on daily data. Results suggest that Bitcoin, Ethereum, and Litecoin are hedges, especially against Asian Pacific and Japanese equities, with evidence of a time-variability in some cases. Further portfolio analyses indicate the benefit of hedging equities with cryptocurrencies in both in-sample and out-of-sample analyses. Specifically, the hedging effectiveness results point to diversification advantages for the hedged portfolios compared to unhedged (equity only) portfolios.

Suggested Citation

  • Bouri, Elie & Lucey, Brian & Roubaud, David, 2020. "Cryptocurrencies and the downside risk in equity investments," Finance Research Letters, Elsevier, vol. 33(C).
    • Handle: RePEc:eee:finlet:v:33:y:2020:i:c:s1544612318306342
    DOI: 10.1016/j.frl.2019.06.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Cryptocurrency; MSCI equity indices; Diversifier; DCC; Quantiles;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    Access and download statistics

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