The Higher the Better? Hedging and Investment Strategies in Cryptocurrency Markets: Insights from Higher Moment Spillovers

Xie He () and Shigeyuki Hamori
Additional contact information
Xie He: Graduate School of Economics, Kobe University

No 2315, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: This study aims to investigate whether conditional higher moments offer additional and distinct information compared to lower moments in spillover effect analysis, and to examine their relevance for portfolio construction and hedging strategies. We employ the autoregressive conditional density (ACD) model to estimate the conditional skewness and kurtosis of nine major cryptocurrency markets. Furthermore, we explore the higher moment spillovers among these markets using the Diebold Yilmaz spillover approach. The results confirm that the magnitude and direction of spillover effects vary across different moments in the cryptocurrency market, each providing unique insights. Additionally, we find that although the spillover effects exhibit variations over different time periods and market conditions, the skewness spillover and kurtosis spillover, which track the transmission of downside (upside) risk and tail risk respectively, demonstrate similarities in their patterns. These variations differ noticeably from the changes observed in volatility spillover, which tracks the transmission of volatility risk. Finally, comparing the minimum connectedness portfolio (MCoP) based on different moment spillovers, we discover that the MCoP derived from higher moment spillovers exhibits superior hedge effectiveness and Sharpe ratios.

Pages: 35 pages
Date: 2023-09
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2023-1/2315.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.econ.kobe-u.ac.jp:443 (Bad file descriptor) (http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2023-1/2315.pdf [301 Moved Permanently]--> https://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2023-1/2315.pdf)

Related works:
Journal Article: The higher the better? Hedging and investment strategies in cryptocurrency markets: Insights from higher moment spillovers (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:koe:wpaper:2315

Access Statistics for this paper

More papers in Discussion Papers from Graduate School of Economics, Kobe University Contact information at EDIRC.
Bibliographic data for series maintained by Kimiaki Shirahama ( this e-mail address is bad, please contact ).