Portfolio diversification possibilities of cryptocurrency: global evidence

【Author】 Jayawardhana, Asanga; Colombage, Sisira R. N.

【Source】APPLIED ECONOMICS

【影响因子】1.916

【Abstract】This article explores the cointegration, co-movement, and causality relationships amongst the equity, debt, and cryptocurrency markets to determine the risk diversification possibilities of an investment portfolio. We employ daily data extracted from the Bloomberg data terminal from 2 August 2017 to 2 June 2022 to investigate the short- and long-run relationships between these markets. Indices from the U.S.A., Europe, China, Australia, and Japan are selected as the proxies for the analysis. The autoregressive distributed lag (ARDL) model, followed by unit root testing in the presence of structural breaks, indicates no long-run relationship among six financial variables and the cryptocurrency market. Although the Toda Yamamoto causality test does reveal unidirectional causality running from European and Chinese markets to the cryptocurrency market, we find no evidence to prove the existence of any bidirectional causality between markets. Furthermore, we use the R-squared metrics to analyse the market behaviour and co-movement between the cryptocurrency market and other financial markets. The test findings exhibit a lower level of co-movement behaviour. Our overall results suggest potential portfolio diversification possibilities between cryptocurrency and financial markets based on Modern Portfolio Theory (MPT).

【Keywords】ARDL; cointegration; portfolio diversification; equity & bond market; cryptocurrency

【发表时间】2023 2023 SEP 25

【收录时间】2023-10-16

【文献类型】实证数据

【主题类别】

区块链治理-市场治理-市场分析