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Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication

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  • Yousaf, Imran
  • Yarovaya, Larisa

Abstract

The paper examines the return and volatility transmission between NFTs, Defi assets, and other assets (oil, gold, Bitcoin, and S&P 500) using the TVP-VAR framework. The results report weak static return and volatility spillovers between NFTs and Defi assets and selected markets, showing that these new digital assets are still relatively decoupled from traditional asset classes. Bitcoin, oil, and half of the NFTs and Defi assets are net transmitters of return and volatility spillovers, whereas rest of the markets are net recipients of spillovers. Our findings show that the dynamic return and volatility connectedness become higher during the initial phase of the COVID-19 pandemic and the cryptocurrency bubble of 2021. We also compute the static and dynamic optimal weights, hedge ratios, and hedging effectiveness for the portfolios of NFTs/other asset and Defi asset/other asset and show that investors and portfolio managers should consider adding NFTs and Defi assets in their portfolios of gold, oil, and stock markets to achieve diversification benefits.

Suggested Citation

  • Yousaf, Imran & Yarovaya, Larisa, 2022. "Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication," Global Finance Journal, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:glofin:v:53:y:2022:i:c:s1044028322000217
    DOI: 10.1016/j.gfj.2022.100719
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    More about this item

    Keywords

    NFTs; Defi assets; Alternative investments; Diversification; COVID-19; Cryptocurrency bubble;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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