Blockchain ETFs: dynamic correlations and hedging capabilities
ISSN: 0307-4358
Article publication date: 7 December 2020
Issue publication date: 22 April 2021
Abstract
Purpose
In this paper, the authors examine the interconnectedness of four blockchain exchange-traded funds (ETFs) with other financial markets, such as stocks and cryptocurrencies.
Design/methodology/approach
A multivariate dynamic conditional correlation model is used to model the relationship of blockchain ETFs with equity and cryptocurrency markets. Risk-minimizing hedge ratios are calculated following the methods used in studies by Kroner and Sultan (1993) and Sadorsky (2012).
Findings
The empirical results show a high degree of correlation of blockchain ETF returns with returns of the NASDAQ Composite Index, while the level of comovement with Bitcoin is relatively low.
Research limitations/implications
The results imply that blockchain ETFs may be suitable for hedging purposes in a portfolio holding Bitcoin. Furthermore, investing in blockchain ETFs appears similar to investing in NASDAQ.
Originality/value
To the best of the authors’ knowledge, no studies have investigated the dynamic relationship of blockchain ETFs and other financial assets.
Keywords
Citation
Pavlova, I. (2021), "Blockchain ETFs: dynamic correlations and hedging capabilities", Managerial Finance, Vol. 47 No. 5, pp. 687-702. https://doi.org/10.1108/MF-11-2019-0565
Publisher
:Emerald Publishing Limited
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