Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/237248 
Year of Publication: 
2021
Citation: 
[Journal:] Financial Innovation [ISSN:] 2199-4730 [Volume:] 7 [Issue:] 1 [Publisher:] Springer [Place:] Heidelberg [Year:] 2021 [Pages:] 1-37
Publisher: 
Springer, Heidelberg
Abstract: 
This study examines the portfolio diversification benefits of alternative currency trading in Bitcoin and foreign exchange markets. The following methods are applied for the analysis: the spillover index method of Diebold and Yilmaz (Int J Forecast 28(1): 57-66, 2012. https://doi.org/10.1016/j.ijforecast.2011.02.006), the spillover asymmetry measures of Barunik et al. (J Int Money Finance 77: 39-56, 2017. https://doi.org/10.1016/j.jimonfin.2017.06.003), and the frequency connectedness method of Barunik and Kérehlík (J Financ Econom 16(2): 271-296, 2018. https://doi.org/10.1093/jjfinec/nby001). The findings identify the presence of low-level integration and asymmetric volatility spillover as well as a dominant role of short horizon spillover among Bitcoin markets and foreign exchange pairs for six major trading currencies (US dollar, euro, Japanese yen, British pound sterling, Australian dollar, and Canadian dollar). Bitcoin is found to provide significant portfolio diversification benefits for alternative currency foreign exchange portfolios. Alternative currency Bitcoin trading in euro is found to provide the most significant portfolio diversification benefits for foreign exchange portfolios consisting of major trading currencies. The findings of the study regarding spillover dynamics and portfolio diversification capabilities of the Bitcoin market for foreign exchange markets of major trading currencies have significant implications for portfolio diversification and risk minimization.
Subjects: 
Bitcoin
Frequency connectedness
Major trading currencies
Spillover asymmetry measure
Spillover index
JEL: 
G10
G15
G19
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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