Conditional tail-risk in cryptocurrency markets

By Nicola Borri. Journal of Empirical Finance, 2019

338 citations recorded by the source corpus.

Abstract In this paper we use C o V a R to estimate the conditional tail-risk in the markets for bitcoin, ether, ripple and litecoin and find that these cryptocurrencies are highly exposed to tail-risk within cryptomarkets, while they are not exposed to tail-risk with respect to other global assets, like the U.S. equity market or gold. Although cryptocurrency returns are highly correlated one with the other, we find that idiosyncratic risk can be significantly reduced and that portfolios of cryptocurrencies offer better risk-adjusted and conditional returns than individual cryptocurrencies. These results indicate that portfolios of cryptocurrencies could offer attractive returns and hedging properties when included in investors’ portfolios. However, when we account for liquidity, the share of crypto assets in investors’ optimal portfolio is small.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a93a2dadfe7a04212ec141a18208e4fb9144106b

Citations in the corpus

• Forecasting the volatility of Bitcoin: The importance of jumps and structural breaks (2020, neutral): “…Nadarajah and Chu 2018; Tiwari et al 2018), the hedging and diversification benefits (Bouri et al 2017; Corbet et al 2018a; Urquhart and Zhang 2018; Borri 2019), the existence of bubbles (Cheah and Fry 2015; Corbet et al 2018b) and the behaviour of Bitcoin returns (Urquhart 2017; Corbet and…”
• Value-at-risk and expected shortfall in cryptocurrencies’ portfolio: a vine copula–based approach (2019, neutral): “…– see Briere, Oosterlinck, and Szafarz (2015), Bouoiyour and Selmi (2017), Bouri et al. (2017a), (2017b), Baur, Dimpfl, and Kuck (2018), Feng, Wang, and Zhang (2018), Selmi et al. (2018), Ehlers and Gauer (2019), Guesmi et al. (2019), Borri (2019), Platanakis and Urquhart (2019), among others.”