Authors : Shahroz Hameed, Umair Khalid and Sarah Nawazish
Abstract: The study aims to explore the hedging capabilities and diversification benefits of three cryptocurrencies, Ethereum, Ripple and Litecoin in a portfolio, constructed with traditional asset classes. The portfolio comprises traditional assets gold, Brent oil, USRE, S&P 500 and Pvt. Equity. The daily data has been taken from 31st Aug 2015 to 31st Aug 2021. The daily data has been obtained from Coin desk Market and St, Louis FRED database. Dynamic conditional correlation GARCH (DCC-GARCH) model has been applied to find the hedging capabilities and diversification benefits of cryptocurrencies in the portfolio pre-COVID-19 and during COVID-19. The empirical results reveal that Ethereum, Litecoin and Ripple provide diversification benefits. Moreover, hedging capabilities and diversification benefits of three cryptocurrencies, Ethereum, Ripple and Litecoin have been forecasted by employing the Vector Autoregression (VAR) model and found that the price of Ripple has been an increasing trend.
Shahroz Hameed, Umair Khalid and Sarah Nawazish, 2021. An Investigation of Diversification Benefits and Hedging Capabilities of Cryptocurrencies in Portfolio Management during COVID-19. International Business Management, 15: 420-433.