A0587
Title: Can NFTs risk hedge other traditional assets after the COVID19 pandemic?
Authors: Wenting Zhang - Kobe University (Japan) [presenting]
Abstract: The aim is to analyze the dynamic spillover effects between the NFT market, Bitcoin market, oil market, gold futures market, S&P 500 stock index, bond market, and US dollar index over three time periods: the full sample period before the COVID-19 outbreak, and after the COVID-19 outbreak by employing the DCC-GARCH-based connectedness model. Furthermore, the DCC-GARCH-t-Copula model, Risk Parity Portfolio (RPP) model, and Minimum Connectedness Portfolio (MCoP) model are applied to evaluate the bilateral dynamic hedge ratios, portfolio weights, and the multivariate portfolio performance of these financial assets, respectively. The findings suggest that NFTs are volatility spillover transmitters during either period and that the COVID-19 outbreak accelerates the speed and intensity of volatility spillovers from NFTs to traditional financial markets. Moreover, most of the volatility spillovers from NFTs are caused by endogenous shocks, which implies that NFTs can prevent financial risk contagion. The results of risk hedging analysis and multivariate portfolio results show that NFTs can effectively hedge other traditional financial assets as long positions. NFTs can also reduce investment risk despite their smaller weighting in a multivariate portfolio. The explosion of COVID-19 makes MCoP slightly outperform RPP, although RPP outperforms MCoP in general.
