Does volatility connectedness across major cryptocurrencies behave the same at different frequencies? A portfolio risk analysis

Khamis Hamed Al-Yahyaee, Idries Mohammad Wanas Al-Jarrah, Xuan Vinh Vo, Sang Hoon Kang

Research output: Contribution to journalArticlepeer-review

36 Citations (Scopus)

Abstract

This study investigates dynamic frequency connectedness for volatility differences among eight popular cryptocurrencies (Bitcoin, Ethereum, Litecoin, Dash, Monero, Ripple, Nem and Stellar). It employs the methodologies of Diebold and Yilmaz (2014; 2016) and Baruník and Křehlík (2018). Furthermore, an analysis of diversification benefits and downside risk reductions is carried out. The results demonstrated dynamic spillovers, which intensified after 2017. Furthermore, Bitcoin, Ethereum, and Litecoin are net transmitters of risk, which can be a contagion source; Dash, Ripple, Monero, Stellar, and Nem are net receivers of risk. Moreover, the short-term risk spillover is more pronounced than the medium- and long-term risk spillovers, which also increased after 2017. The directional spillovers among cryptocurrencies is sensitive to frequencies. Finally, adding a cryptocurrency to a benchmark Bitcoin portfolio provides diversification benefits and downside risk reductions. In contrast, adding Bitcoin to a cryptocurrency portfolio do not offers diversification opportunities.

Original languageEnglish
Pages (from-to)96-113
Number of pages18
JournalInternational Review of Economics and Finance
Volume76
DOIs
Publication statusPublished - 2021

Keywords

  • Connectedness network
  • Cryptocurrency markets
  • Diversification analysis
  • Dynamic spillovers
  • Frequency-domain space

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance

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