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

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.

Dynamic risk-based optimization on cryptocurrencies

“…Several studies investigated the performance of cryptocurrencies portfolio under different optimization techniques (Platanakis et al , 2018; Symitsi and Chalvatzis, 2018; Brauneis and Mestel, 2019; Guesmi et al , 2019; Kajtazi and Moro, 2019; Liu, 2019; Platanakis and Urquhart, 2019; Schellinger, 2020; Susilo et al , 2020). However, Markowitz's approach (Markowitz, 1952) has two noticeable drawbacks based on theoretical perspectives (Kaucic et al , 2019).…”

Spillovers and bivariate portfolios of gold-backed cryptocurrencies and gold during the COVID-19 outbreak

“…For instance, bitcoin was not a haven asset during the COVID-19 bear market (Conlon and McGee, 2020). Similarly, the equities/cryptocurrencies-focused investment has a better performance than risk mitigation (Susilo et al, 2020).…”

Korelasi Dinamis Pergerakan Cryptocurrency Dan Indeks Harga Saham Sektoral Di Bursa Efek Indonesia

“…Tiwari et al ( 2019) menemukan volatilitas cryptocurrency lebih merespon guncangan negatif terhadap pasar saham S&P 500 sehingga cryptocurrency dapat menjadi elemen penting dalam diversifikasi portofolio, karena berfungsi sebagai aset lindung nilai risiko di pasar saham S&P 500. Susilo et al (2020) menyatakan bahwa cryptocurrency tidak signifikan dalam efektivitas nilai lindung terhadap indeks ekuitas (Indonesia, Malaysia, Vietnam, Thailand, dan Filipina) dan iShares ETF MSCI Word (negara maju). Pasar negara berkembang di Asia Tenggara lebih baik secara keseluruhan menggunakan komoditas karena memiliki lindung nilai yang lebih baik.…”