Do cryptocurrencies provide better hedging? Evidence from major equity markets during COVID-19 pandemic

• DOI: 10.1016/j.najef.2022.101776
• Publication Date: 2022-07-21T06:34:49Z
• Authors: Debasish Maitra; Mobeen Ur Rehman; Saumya Ranjan Dash; Sang Hoon Kang
• Keywords: Spillover effect; Equity; Pandemic; Hedge; Stock (firearms)

Using the five-minute interval price data of two cryptocurrencies and eight stock market indices, we examine the risk spillover and hedging effectiveness between these two assets. Our approach provides a comparative assessment encompassing the pre-COVID-19 and COVID-19 sample periods. We employ copula models to assess the dependence and risk spillover from Bitcoin and Ethereum to stock market returns during both the pre-COVID-19 and COVID-19 periods. Notably, the COVID-19 pandemic has increased the risk spillover from Bitcoin and Ethereum to stock market returns. The findings vis-à-vis portfolio weights and hedge effectiveness highlight hedging gains; however, optimal investments in Bitcoin and Ethereum have reduced during the COVID-19 pandemic, while the cost of hedging has increased during this period. The findings also confirm that cryptocurrencies cannot provide incremental gains by hedging stock market risk during the COVID-19 pandemic.