Introduction
This study examines the hedging and safe-haven properties of Bitcoin (BTC) and Ethereum (ETH) against emerging stock market (ESM) indices. Key findings highlight their evolving roles during market turbulence, particularly amid the COVID-19 pandemic.
Key Findings
Hedging Performance:
- BTC demonstrated superior hedging effectiveness for ESM indices compared to ETH during the pandemic.
- All hedging costs increased significantly during volatile periods.
Portfolio Strategies:
- Pre-pandemic: Optimal weight-based strategies outperformed traditional hedge portfolio approaches.
- Pandemic period: BTC alone exhibited strong safe-haven properties for Malaysia’s stock index.
Safe-Haven Attributes:
- Weak safe-haven effects were observed for most ESM indices, except BTC’s resilience in Malaysia.
Implications for Investors
- Diversification: Cryptocurrencies can enhance portfolio resilience but require dynamic strategy adjustments.
- Risk Management: BTC’s hedging efficiency makes it a preferable choice during systemic crises.
FAQs
Q1: Can cryptocurrencies reliably hedge against stock market downturns?
A1: While BTC showed promise, effectiveness varies by market conditions. ETH’s hedging capacity was notably weaker.
Q2: How did the pandemic impact crypto-stock correlations?
A2: Hedging costs surged, with BTC emerging as a more stable hedge than ETH.
Q3: Should investors prioritize BTC or ETH for portfolio diversification?
A3: BTC’s historical performance suggests better risk mitigation, but ETH may suit long-term growth-oriented portfolios.
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