Time frequency analysis of the commonalities between Bitcoin and major Cryptocurrencies: Portfolio risk management implications

Walid Mensi, Mobeen Ur Rehman, Khamis Al Yahyaee, Idries Mohammad Wanas Al-Jarrah, Sang Hoon Kang

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)283-294
Number of pages12
JournalNorth American Journal of Economics and Finance
Volume48
DOIs
Publication statusPublished - Apr 1 2019

Fingerprint

Comovement
Risk reduction
Hedging
Commonality
Frequency analysis
Portfolio risk
Risk management
Hedging effectiveness
Downside risk
Wavelets
Wavelet transform
Diversification benefits
Investors
Time horizon
Managers

Keywords

  • Cryptocurrencies
  • Downside risk
  • Hedging effectiveness
  • Time frequency analysis
  • Wavelet techniques

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Time frequency analysis of the commonalities between Bitcoin and major Cryptocurrencies : Portfolio risk management implications. / Mensi, Walid; Rehman, Mobeen Ur; Al Yahyaee, Khamis; Al-Jarrah, Idries Mohammad Wanas; Kang, Sang Hoon.

In: North American Journal of Economics and Finance, Vol. 48, 01.04.2019, p. 283-294.

Research output: Contribution to journalArticle

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