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Identifying Cryptocurrencies as Diversifying Assets and Safe Haven in the Indian Stock Market

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  • Susovon Jana

    (Vidyasagar University)

  • Tarak Nath Sahu

    (Vidyasagar University)

Abstract

This study investigates the interconnectedness between cryptocurrency and the Indian stock market and explores the diversification, hedge, and safe haven potential of cryptocurrency. The study employs the wavelet approach on daily data from October 6, 2017, to October 5, 2022, to execute the empirical analysis. The findings confirm that, in a healthy economic environment, cryptocurrencies are not connected with the Indian stock market. However, during times of financial turmoil, Bitcoin, Ethereum, and Cardano are positively correlated with the stock market. Additionally, the study identifies Bitcoin, Ethereum, Dogecoin, and Cardano as competent in providing diversification, or hedge opportunities in normal economic situations. But during periods of financial stress, only Dogecoin may act as a safe haven asset. This is the first study to explore the time-varying correlations and causal dependencies between the stock and cryptocurrency markets in India using the wavelet approach. It extends the literature in finance by examining both normal and economic turmoil periods, providing insights for portfolio managers, policymakers, and investors on how to manage their portfolios during these periods.

Suggested Citation

  • Susovon Jana & Tarak Nath Sahu, 2024. "Identifying Cryptocurrencies as Diversifying Assets and Safe Haven in the Indian Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(4), pages 925-944, December.
    • Handle: RePEc:kap:apfinm:v:31:y:2024:i:4:d:10.1007_s10690-023-09436-5
    DOI: 10.1007/s10690-023-09436-5
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    More about this item

    Keywords

    Stock Market; Cryptocurrency; Wavelet Coherence; Co-movement; Diversification; Safe Haven;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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