Preprint Article Version 1 Preserved in Portico This version is not peer-reviewed

Dynamic Connectedness and Portfolio Diversification during the Coronavirus Disease 2019 Pandemic: Evidence from the Cryptocurrency Market

Version 1 : Received: 10 June 2021 / Approved: 10 June 2021 / Online: 10 June 2021 (12:07:58 CEST)

How to cite: Nasreen, S.; Tiwari, A.K.; Yoon, S. Dynamic Connectedness and Portfolio Diversification during the Coronavirus Disease 2019 Pandemic: Evidence from the Cryptocurrency Market. Preprints 2021, 2021060291 (doi: 10.20944/preprints202106.0291.v1). Nasreen, S.; Tiwari, A.K.; Yoon, S. Dynamic Connectedness and Portfolio Diversification during the Coronavirus Disease 2019 Pandemic: Evidence from the Cryptocurrency Market. Preprints 2021, 2021060291 (doi: 10.20944/preprints202106.0291.v1).

Abstract

This paper examines interlinkages and hedging opportunities between nine major cryptocurrencies for the period between 30 September 2015 and 4 June 2020, which notably includes the coronavirus disease 2019 (COVID-19) outbreak lasting from early 2020 through the end of the sample period. The results of dynamic conditional correlation (DCC) analysis using a minimum connectedness approach show a high degree of correlation between cryptocurrencies throughout the sample period. However, the correlations reach their minimum values during the COVID-19 pandemic, which indicates that cryptocurrencies acted as a hedge or safe haven during the stressful period of the COVID-19 pandemic. The weight of cryptocurrencies was significantly reduced and their hedging effectiveness varied greatly during the pandemic, which indicates that investors’ preferences changed during the COVID-19 period.

Subject Areas

Cryptocurrency; Coronavirus Disease 2019; Time-Varying Parameter Vector Autoregression; Portfolio Weight; Hedging Effectiveness

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