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Cryptocurrencies: Hedging Opportunities From Domestic Perspectives in Southeast Asia Emerging Markets

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  • Didik Susilo
  • Sugeng Wahyudi
  • Irene Rini Demi Pangestuti
  • Bayu Adi Nugroho
  • Robiyanto Robiyanto

Abstract

Previous studies have shown that cryptocurrencies could hedge equities. However, most of those studies did not take into account the recent cryptocurrencies bubbles in 2018 and domestic currencies. Therefore, this research aimed to study whether the hedge effectiveness of cryptocurrencies still exists. This research used five cryptocurrencies (bitcoin, ethereum, monero, ripple, and litecoin), equity indices (Indonesia, Malaysia, Vietnam, Thailand, and the Philippines), and iShares ETF MSCI World (developed world). Commodities-based hedging using iShares S&P GSCI Commodity-Indexed Trust was also analyzed as a comparison. The asymmetric generalized dynamic conditional correlation (AG-DCC) GARCH showed that one cryptocurrency could not significantly and consistently hedge equities while five equally weighted cryptocurrencies could marginally hedge equities. Meanwhile, the classical minimum variance model also showed that the hedge effectiveness of cryptocurrencies was insignificantly positive. Equity traders could add cryptocurrencies into portfolios when the purpose was to maximize the Sharpe ratio instead of hedging. Overall, commodities were the better hedge for Southeast Asia emerging markets.

Suggested Citation

  • Didik Susilo & Sugeng Wahyudi & Irene Rini Demi Pangestuti & Bayu Adi Nugroho & Robiyanto Robiyanto, 2020. "Cryptocurrencies: Hedging Opportunities From Domestic Perspectives in Southeast Asia Emerging Markets," SAGE Open, , vol. 10(4), pages 21582440209, November.
    • Handle: RePEc:sae:sagope:v:10:y:2020:i:4:p:2158244020971609
    DOI: 10.1177/2158244020971609
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    Cited by:

    1. Andreas Renard Widarto & Harjum Muharam & Sugeng Wahyudi & Irene Rini Demi Pangestuti, 2022. "ASEAN-5 and Crypto Hedge Fund: Dynamic Portfolio Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.
    2. Karim, Sitara & Lucey, Brian M. & Naeem, Muhammad Abubakr & Vigne, Samuel A., 2023. "The dark side of Bitcoin: Do Emerging Asian Islamic markets help subdue the ethical risk?," Emerging Markets Review, Elsevier, vol. 54(C).
    3. Tan, Zi Ling & Lim, Siok Jin, 2023. "Cryptocurrency in the East: Exploring Ethereum's Link to Asian-Pacific Stock Indices through Multivariate-GARCH Approach," MPRA Paper 121786, University Library of Munich, Germany, revised 2024.

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