Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication
Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication
The paper examines the return and volatility transmission between NFTs, Defi assets, and other assets (oil, gold, Bitcoin, and S&P 500) using the TVP-VAR framework. The results report weak static return and volatility spillovers between NFTs and Defi assets and selected markets, showing that these new digital assets are still relatively decoupled from traditional asset classes. Bitcoin, oil, and half of the NFTs and Defi assets are net transmitters of return and volatility spillovers, whereas rest of the markets are net recipients of spillovers. Our findings show that the dynamic return and volatility connectedness become higher during the initial phase of the COVID-19 pandemic and the cryptocurrency bubble of 2021. We also compute the static and dynamic optimal weights, hedge ratios, and hedging effectiveness for the portfolios of NFTs/other asset and Defi asset/other asset and show that investors and portfolio managers should consider adding NFTs and Defi assets in their portfolios of gold, oil, and stock markets to achieve diversification benefits.
Alternative investments, COVID-19, Cryptocurrency bubble, Defi assets, Diversification, NFTs
Yousaf, Imran
4c6ebdab-7527-42b4-986b-94db0f2749e9
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
August 2022
Yousaf, Imran
4c6ebdab-7527-42b4-986b-94db0f2749e9
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Yousaf, Imran and Yarovaya, Larisa
(2022)
Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication.
Global Finance Journal, 53, [100719].
(doi:10.1016/j.gfj.2022.100719).
Abstract
The paper examines the return and volatility transmission between NFTs, Defi assets, and other assets (oil, gold, Bitcoin, and S&P 500) using the TVP-VAR framework. The results report weak static return and volatility spillovers between NFTs and Defi assets and selected markets, showing that these new digital assets are still relatively decoupled from traditional asset classes. Bitcoin, oil, and half of the NFTs and Defi assets are net transmitters of return and volatility spillovers, whereas rest of the markets are net recipients of spillovers. Our findings show that the dynamic return and volatility connectedness become higher during the initial phase of the COVID-19 pandemic and the cryptocurrency bubble of 2021. We also compute the static and dynamic optimal weights, hedge ratios, and hedging effectiveness for the portfolios of NFTs/other asset and Defi asset/other asset and show that investors and portfolio managers should consider adding NFTs and Defi assets in their portfolios of gold, oil, and stock markets to achieve diversification benefits.
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Accepted/In Press date: 23 March 2022
e-pub ahead of print date: 26 March 2022
Published date: August 2022
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Publisher Copyright:
© 2022 Elsevier Inc.
Keywords:
Alternative investments, COVID-19, Cryptocurrency bubble, Defi assets, Diversification, NFTs
Identifiers
Local EPrints ID: 457743
URI: http://eprints.soton.ac.uk/id/eprint/457743
ISSN: 1044-0283
PURE UUID: 2eff49bb-3549-406c-a442-0fa57ebf02b2
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Date deposited: 16 Jun 2022 00:29
Last modified: 17 Mar 2024 03:54
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Author:
Imran Yousaf
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