TY - JOUR
T1 - Time frequency analysis of the commonalities between Bitcoin and major Cryptocurrencies
T2 - Portfolio risk management implications
AU - Mensi, Walid
AU - Rehman, Mobeen Ur
AU - Al-Yahyaee, Khamis Hamed
AU - Al-Jarrah, Idries Mohammad Wanas
AU - Kang, Sang Hoon
N1 - Publisher Copyright:
© 2019 Elsevier Inc.
PY - 2019/4
Y1 - 2019/4
N2 - This paper uses wavelet coherence and cross wavelet transform approaches to examine co-movement between Bitcoin and five major cryptocurrencies (Dash, Ethereum, Litecoin, Monero and Ripple) and their portfolio risk implications. The results show evidence of co-movements in time frequency space with leading relationships of Bitcoin with Dash, Monero and Ripple, lagging relationship with Ethereum, and out of phase movements with Litecoin. By considering different portfolios (risk-minimizing portfolio, equally weighted portfolio and hedging portfolio), we show evidence that a mixed portfolio (Bitcoin with other cryptocurrencies) provides better diversification benefits for investors and portfolio managers. Finally, an Ethereum-Bitcoin (Monero-Bitcoin) hedging portfolio offers the highest risk reductions and hedging effectiveness under medium and long term (short term) horizon. The results of downside risk reductions are time horizon dependent.
AB - This paper uses wavelet coherence and cross wavelet transform approaches to examine co-movement between Bitcoin and five major cryptocurrencies (Dash, Ethereum, Litecoin, Monero and Ripple) and their portfolio risk implications. The results show evidence of co-movements in time frequency space with leading relationships of Bitcoin with Dash, Monero and Ripple, lagging relationship with Ethereum, and out of phase movements with Litecoin. By considering different portfolios (risk-minimizing portfolio, equally weighted portfolio and hedging portfolio), we show evidence that a mixed portfolio (Bitcoin with other cryptocurrencies) provides better diversification benefits for investors and portfolio managers. Finally, an Ethereum-Bitcoin (Monero-Bitcoin) hedging portfolio offers the highest risk reductions and hedging effectiveness under medium and long term (short term) horizon. The results of downside risk reductions are time horizon dependent.
KW - Cryptocurrencies
KW - Downside risk
KW - Hedging effectiveness
KW - Time frequency analysis
KW - Wavelet techniques
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U2 - 10.1016/j.najef.2019.02.013
DO - 10.1016/j.najef.2019.02.013
M3 - Article
AN - SCOPUS:85062447356
SN - 1062-9408
VL - 48
SP - 283
EP - 294
JO - North American Journal of Economics and Finance
JF - North American Journal of Economics and Finance
ER -