Connectedness between Defi assets and equity markets during COVID-19: A sector analysis

doi:10.1016/j.techfore.2022.122174

Technological Forecasting and Social Change

Volume 187, February 2023, 122174

https://doi.org/10.1016/j.techfore.2022.122174 Get rights and content

Highlights

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Study of dynamic connectedness between Defi assets and sector stock markets during COVID-19
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TVP-VAR and DCC-GARCH model are implemented for optimal weights and hedge ratios for Defi assets-sector equity portfolios
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Static connectedness is slightly economy- and sector-dependent, and dynamic total spillover changes over time, with a huge impact of pandemic
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Regarding net connectedness, some sectors would be net receivers. Contrarily, industrials, materials and information technology would be time-varying net transmitters
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Optimal hedge ratios would reveal similar levels of coverage for all periods, with slight upturns in costs during COVID-19

Abstract

This paper explores the dynamic connectedness between Defi assets and sector stock markets focused around the COVID-19 pandemic crisis. For that aim, this research applies the TVP-VAR model, and it also computes the optimal weights and hedge ratios for the Defi assets–sector equity portfolios using the DCC-GARCH model. Our main findings reveal that static connectedness is slightly economy- and sector-dependent. Regarding the dynamic connectedness, as expected, the total spillover index changes over time, showing a cruel impact of the global pandemic declaration. Net spillover indices show relevant differences between the Defi assets and certain sectors (net receivers) and sectors such as industrials, materials and information technology (time-varying net transmitters). Finally, the optimal hedge ratios reveal similar levels of coverage in all the periods analyzed, with slight upturns in the cost of such coverage in the crisis period caused by COVID-19.

JEL classifications

C22

C51

L61

Q02

Keywords

Defi assets

Sector stock markets

Connectedness

COVID-19 pandemic crisis

Data availability

Data will be made available on request.

Cited by (0)

Imran Yousaf is an Assistant Professor of Finance. His research interests include Financial Contagion, Portfolio Management, and FinTech. He has published in Finance journals like Energy Economics, JIFMIM, IRFA, Finance Research Letters, Pacific-Basin Finance Journal, RIBAF, Journal of Behavioral and Experimental Finance, among others.

Francisco Jareño is a Full Professor of Finance and carries out his research in Finance, specifically in the study of the term structure of interest rates and volatilities, international financial markets, risk management and cryptocurrencies. He has published in journals such as Energy Economics, RIBF, IREF, IRFA, QF, EJOR, EE, among others.

Marta Tolentino is an Associate Professor of Finance and her research interests in Finance are fixed income, investment strategies, international financial markets, risk management and cryptocurrencies. She has published in journals like Resources Policy, Economic Research, Acta Oeconomica, Mathematics, among others.

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