The Role of Crypto-Currency in a Multi-Asset Portfolio: Safe Haven, Hedge, Or Diversifier?
Abstract
Cryptocurrencies have attracted increased attention from governments, businessmen and investors alike, because it has a set of properties. This paper explores whether cryptocurrencies can act as a diversification or for hedging the risks of investing in securities, and whether they provide a safe haven property for investments during financial crises, In order to model time-varying dynamic correlations between Cryptocurrencies (Bitcoin, Litecoin) and Financial assets (gold and crude oil, and stock market indices S&P500, DJI100X, STOXX600), the study applied the DCC-GARCH model On daily data for the period from 2015-2020 Which was marked by great disturbances and the global financial system was shaken by COVID-19 pandemic, The study found that Bitcoin is a diversification tool in gold, And a tool to hedge investment risks in stocks and crude oil alongside Litecoin, The study also concluded that the safe haven feature is not available in the two currencies in times of specific crisis periods.
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