Abstract
This paper examines the dynamic conditional correlations among 10 cryptocurrencies and the possibility of hedging investment strategies among multiple cryptocurrencies over the period affected by COVID-19 from 2017 to 2022. After studying the relationship between Bitcoin, Ethereum, and the other eight cryptocurrencies, four main results were obtained in this paper: first, from the pre-COVID-19 period to the COVID-19 period, almost all of the cryptocurrencies’ return growth rates increased, and COVID-19 had a positive effect on the returns of cryptocurrencies. Second, all of the cryptocurrencies’ return indices had features of volatility clustering and memory persistence in the long run; from pre-COVID-19 to COVID-19, these cryptocurrencies’ GARCH values decreased, but the correlations among the varying GARCH values increased. Third, the varying correlations between the return indices of Bitcoin, Ethereum, and the other cryptocurrencies were very strong; from pre-COVID-19 to COVID-19, the average dynamic correlations between Bitcoin and the others increased. Fourth, Tether can be used as a hedge cryptocurrency against the other cryptocurrencies as COVID-19 enhanced its hedging feature.
Highlights
Cryptocurrencies have become a popular economic and financial topic
For the COVID-19 period, the highest generalized auto-regressive conditional heteroscedasticity (GARCH) values occurred during March 2020
This paper focused on studying the relationship between Bitcoin, Ethereum, and the other eight cryptocurrencies, including Tether, Ripple, Litecoin, Bitcoin Cash, Stellar, Monero, EOS, and NEO
Summary
Cryptocurrencies have become a popular economic and financial topic. When a cryptocurrency is defined as a digital currency, it is very different from a fiat currency because cryptocurrencies are not issued by any judicial body (IFRSIC 2019). The risk involved in cryptocurrencies is obvious Because of their higher volatilities (Caporale and Zekokh 2019; Siswantoro et al 2020), cryptocurrencies cannot be accepted as a common standard for measuring the relative worth of goods and services, even though many researchers admit that cryptocurrencies are a medium of exchange. The dynamic conditional correlation (DCC) changes in cryptocurrencies before and after COVID-19 have become a major point of contention for investors. This study fills the research gap by identifying the volatility of cryptocurrencies and the dynamic conditional correlation among different cryptocurrencies since the beginning of the COVID-19 pandemic. Except for Tether, the average DCC values between Bitcoin, Ethereum, and the other cryptocurrencies increased; since the COVID-19 pandemic began, the correlations among the 10 cryptocurrencies’ return indices, except for Tether’s, have become higher than before. The correlations between the return indices of Tether and the other nine cryptocurrencies were negative, and Tether can be a hedge cryptocurrency for the other cryptocurrencies
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