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Spillovers and bivariate portfolios of gold-backed cryptocurrencies and gold during the COVID-19 outbreak

Spillovers and bivariate portfolios of gold-backed cryptocurrencies and gold during the COVID-19... This paper aims to analyze the time-varying connectedness of gold-backed cryptocurrencies and gold. This study determines the volatility spillovers in these two asset classes and the performance of bivariate portfolios based on net pairwise spillovers.Design/methodology/approachThis research uses two Islamic and four conventional gold-backed cryptocurrencies and gold as variables. GJR-GARCH method under corrected DCC (cDCC) of Aielli (2013) evaluates the dynamic connectedness. Additionally, the spillovers are created using the dynamic connectedness of Diebold and Yilmaz (2012). A network-based spillover of Diebold and Yılmaz, (2014) is also made. A dynamic optimal weights strategy optimized with DCC-t-Copula determines bivariate portfolios’ performances. In general, there are 21 bivariate portfolios.FindingsThe outbreak of COVID-19 increases the dynamic connectedness of gold and gold-backed cryptocurrencies, which indicates a contagion effect. The results show that gold is the net volatility receiver during the COVID-19 pandemic. Moreover, a portfolio composed of gold and gold-backed cryptocurrency provides high profitability performance but zero hedge effectiveness under optimal weights strategy.Practical implicationsAccording to bivariate portfolios based on net pairwise spillovers, gold-backed cryptocurrencies' investors should not add gold to their portfolio during the pandemic because it is a net receiver of risk from the cryptocurrencies.Originality/valueTo the best of the author’s knowledge, this is the first paper to create bivariate portfolios composed of gold-backed cryptocurrencies and their underlying asset using DCC-t-Copula. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

Spillovers and bivariate portfolios of gold-backed cryptocurrencies and gold during the COVID-19 outbreak

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References (57)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-10-2020-0328
Publisher site
See Article on Publisher Site

Abstract

This paper aims to analyze the time-varying connectedness of gold-backed cryptocurrencies and gold. This study determines the volatility spillovers in these two asset classes and the performance of bivariate portfolios based on net pairwise spillovers.Design/methodology/approachThis research uses two Islamic and four conventional gold-backed cryptocurrencies and gold as variables. GJR-GARCH method under corrected DCC (cDCC) of Aielli (2013) evaluates the dynamic connectedness. Additionally, the spillovers are created using the dynamic connectedness of Diebold and Yilmaz (2012). A network-based spillover of Diebold and Yılmaz, (2014) is also made. A dynamic optimal weights strategy optimized with DCC-t-Copula determines bivariate portfolios’ performances. In general, there are 21 bivariate portfolios.FindingsThe outbreak of COVID-19 increases the dynamic connectedness of gold and gold-backed cryptocurrencies, which indicates a contagion effect. The results show that gold is the net volatility receiver during the COVID-19 pandemic. Moreover, a portfolio composed of gold and gold-backed cryptocurrency provides high profitability performance but zero hedge effectiveness under optimal weights strategy.Practical implicationsAccording to bivariate portfolios based on net pairwise spillovers, gold-backed cryptocurrencies' investors should not add gold to their portfolio during the pandemic because it is a net receiver of risk from the cryptocurrencies.Originality/valueTo the best of the author’s knowledge, this is the first paper to create bivariate portfolios composed of gold-backed cryptocurrencies and their underlying asset using DCC-t-Copula.

Journal

Journal of Islamic Accounting and Business Research – Emerald Publishing

Published: Sep 3, 2021

Keywords: DCC-t-Copula; Gold-backed cryptocurrencies; Optimal weights; Spillovers

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