Bridging the gap: Uncovering static and dynamic relationships between digital assets and BRICS equity markets

Abstract

This study uniquely explores the link between nonfungible tokens (NFTs) and the stock markets, providing vital insights for investors to optimize portfolios during global uncertainties such as the health crisis and geopolitical conflicts. We employ the quantile vector autoregression (QVAR) model on daily data from March 14, 2018 to December 23, 2022. Subsequently, the statistics for portfolio analysis are computed using the DCC-GARCH model. Our results highlight that total connectedness at both extremes is significantly higher than at the mean and median quantiles suggesting strong impact of extreme events. The findings reveal that the equity markets of the BRICS countries receive shocks from the system, and NFTs act as transmitters of these shocks. Finally, the pre-COVID-19 pandemic optimal weights remained lower than the COVID-19 pandemic weights, proposing that to reduce risk investors should increase investment in BRICS markets. Similarly, the higher hedge ratio during the turmoil period implies a higher hedging cost. Our findings imply that investors should consider adjusting their investment strategies during periods of heightened global uncertainty to minimize risk and maximize returns.