Bitcoin and liquidity risk diversification

【Author】 Ghabri, Yosra; Guesmi, Khaled; Zantour, Ahlem

【Source】FINANCE RESEARCH LETTERS

【影响因子】9.848

【Abstract】This paper investigates the potential diversification benefits of adding Bitcoin from a liquidity perspective. Using different multivariate GARCH-Type specifications to model the joint dynamics of the selected financial assets, we find that VARMA (1, 1)-cDCC-GARCH is the best-fit model. By examining the dependence structure between Bitcoin and several financial assets, we find evidence of a low time-varying correlation of liquidity innovations over the period 2014-2019. This finding suggests the existence of a potential gain in diversifying the liquidity risk using Bitcoin instead of traditional assets. The results of the portfolio optimization problem when adding the liquidity constraint show that holding Bitcoin can reduce the liquidity risk under the MeanVariance-Liquidity framework.

【Keywords】Bitcoin; diversification; liquidity innovations; liquidity risk; dynamic multivariate GARCH

【发表时间】2021 MAY

【收录时间】2022-01-02

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