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Portfolio management and dependence structure between cryptocurrencies and traditional assets: evidence from FIEGARCH-EVT-Copula

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  • Ahmed Jeribi

    (Faculty of Economics and Management of Mahdia)

  • Mohamed Fakhfekh

    (Higher Institute of Business Administration of Sfax)

Abstract

The purpose of this paper is twofold. Firstly, it discusses the relationship between five cryptocurrencies, oil prices, and US indices. Secondly, it focuses on determining the best portfolio hedging strategy. Using daily data relevant to the period ranging from January 4, 2016, to November 29, 2019, this study applies the FIEGARCH-EVT-Copula and Hedge ratios analysis. The findings obtained have shown that the crude oil (WTI) and the US indices return highlights the persistence of a negative and significant leverage effect while the cryptocurrency markets present a positive asymmetric volatility effect. Moreover, this paper show evidence of very weak dependence between all the different pairs considered before and after the introduction of Bitcoin Futures. Based on the Hedging ratio and mean-variance approach, this article suggests that to minimize the risk while keeping the same expected returns of the digital-conventional financial asset portfolio, the investor should hold more conventional financial assets than digital assets except for WTI-Bitcoin, WTI- Dash and WTI-Ethereum pairs which the values of their hedge ratios are rather important with respect to OLS regression.

Suggested Citation

  • Ahmed Jeribi & Mohamed Fakhfekh, 2021. "Portfolio management and dependence structure between cryptocurrencies and traditional assets: evidence from FIEGARCH-EVT-Copula," Journal of Asset Management, Palgrave Macmillan, vol. 22(3), pages 224-239, May.
    • Handle: RePEc:pal:assmgt:v:22:y:2021:i:3:d:10.1057_s41260-021-00211-7
    DOI: 10.1057/s41260-021-00211-7
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    Cited by:

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    2. Walid Bakry & Audil Rashid & Somar Al-Mohamad & Nasser El-Kanj, 2021. "Bitcoin and Portfolio Diversification: A Portfolio Optimization Approach," JRFM, MDPI, vol. 14(7), pages 1-24, June.
    3. Fakhfekh, Mohamed & Bejaoui, Azza & Bariviera, Aurelio F. & Jeribi, Ahmed, 2024. "Dependence structure between NFT, DeFi and cryptocurrencies in turbulent times: An Archimax copula approach," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    4. Achraf Ghorbel & Wajdi Frikha & Yasmine Snene Manzli, 2022. "Testing for asymmetric non-linear short- and long-run relationships between crypto-currencies and stock markets," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 387-425, September.
    5. Shafique Ur Rehman & Touqeer Ahmad & Wu Dash Desheng & Amirhossein Karamoozian, 2024. "Analyzing selected cryptocurrencies spillover effects on global financial indices: Comparing risk measures using conventional and eGARCH-EVT-Copula approaches," Papers 2407.15766, arXiv.org.
    6. Zhu, Pengfei & Lu, Tuantuan & Chen, Shenglan, 2022. "How do crude oil futures hedge crude oil spot risk after the COVID-19 outbreak? A wavelet denoising-GARCHSK-SJC Copula hedge ratio estimation method," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 607(C).
    7. Achraf Ghorbel & Ahmed Jeribi, 2021. "Volatility spillovers and contagion between energy sector and financial assets during COVID-19 crisis period," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 11(3), pages 449-467, September.
    8. Mercik, Aleksander & Słoński, Tomasz & Karaś, Marta, 2024. "Understanding crypto-asset exposure: An investigation of its impact on performance and stock sensitivity among listed companies," International Review of Financial Analysis, Elsevier, vol. 92(C).
    9. Azza Bejaoui & Wajdi Frikha & Ahmed Jeribi, 2023. "On the dynamic connectedness between the G7 stock market indices and different asset classes: Fresh insights from the COVID-19 pandemic and Russia–Ukraine war," SN Business & Economics, Springer, vol. 3(11), pages 1-21, November.
    10. Ahmed Jeribi & Sangram Keshari Jena & Amine Lahiani, 2021. "Are Cryptocurrencies a Backstop for the Stock Market in a COVID-19-Led Financial Crisis? Evidence from the NARDL Approach," IJFS, MDPI, vol. 9(3), pages 1-36, June.

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