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Time-frequency analysis of behaviourally classified financial asset markets

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  • Omane-Adjepong, Maurice
  • Ababio, Kofi Agyarko
  • Alagidede, Imhotep Paul

Abstract

The paper examines market co-movement between pairs of international assets in the time and frequency spectrum. Using the cumulative prospect theory (CPT), twenty-one cryptocurrencies are classified into high and low assets, with three assets from each class making it into the final sample. We included in our analysis four major global equities. The empirical results indicate a highly connected market for the classified cryptocurrency pairs. Moreover, we found evidence of market differences to be much pronounced as global equities weakly co-move with the cryptocurrency markets. For the undiversified portfolio profitability analysis, the equities, particularly S&P500 unanimously outperformed the cryptocurrencies across all trading scales; whereas portfolio returns produced by PIVX emerged winner under the aggregate return series. Furthermore, the inclusion of CPT classified cryptocurrencies to diversified portfolios constituting international equities significantly affected the portfolio risk-return dynamics positively. Our findings provide intuitive and coherent investment strategies aimed at guiding investors with different market aspirations and risk-return appetite.

Suggested Citation

  • Omane-Adjepong, Maurice & Ababio, Kofi Agyarko & Alagidede, Imhotep Paul, 2019. "Time-frequency analysis of behaviourally classified financial asset markets," Research in International Business and Finance, Elsevier, vol. 50(C), pages 54-69.
    • Handle: RePEc:eee:riibaf:v:50:y:2019:i:c:p:54-69
    DOI: 10.1016/j.ribaf.2019.04.012
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    More about this item

    Keywords

    Cryptocurrencies; Equities; Wavelet coherence; Co-movement; Cumulative Prospect theory; Portfolio diversification;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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