TY - JOUR
T1 - Return spillovers between Decentralized Finance and Centralized Finance Markets
AU - Nekhili, Ramzi
AU - Alomar, Mohammad
AU - Mensi, Walid
AU - Sultan, Jay
PY - 1964
Y1 - 1964
N2 - This study investigates the dynamic return connectedness among Decentralized Finance (DeFi) assets (Chainlink, Maker, Basic Attention Token, and Synthetix) and Centralized Financial assets (CeFi), specifically MSCI World, MSCI US, MSCI Europe, MSCI East Europe, MSCI Asia, and MSCI Far East. The Time-Varying Parameter Vector Autoregressions (TVP-VAR) framework is adopted. Our research findings demonstrate that economic events create variations in the dynamic connectedness of a system. There were peaks throughout the COVID-19 pandemic. Furthermore, the results indicate that DeFi assets like BAT and LINK are the most common shock transmitters, while MAKER and SNX are the most common shock receivers. Nonetheless, the pairwise connectedness for LINK and FarEAST shows that it may not only influence other markets but are also equally receptive to innovations that occur in the majority of these markets due to their high pairwise links. The evidence has major implications for investors in terms of the creation of strategies for the optimization of portfolios and asset allocation, the minimizing of downside risk, and hedging techniques.
AB - This study investigates the dynamic return connectedness among Decentralized Finance (DeFi) assets (Chainlink, Maker, Basic Attention Token, and Synthetix) and Centralized Financial assets (CeFi), specifically MSCI World, MSCI US, MSCI Europe, MSCI East Europe, MSCI Asia, and MSCI Far East. The Time-Varying Parameter Vector Autoregressions (TVP-VAR) framework is adopted. Our research findings demonstrate that economic events create variations in the dynamic connectedness of a system. There were peaks throughout the COVID-19 pandemic. Furthermore, the results indicate that DeFi assets like BAT and LINK are the most common shock transmitters, while MAKER and SNX are the most common shock receivers. Nonetheless, the pairwise connectedness for LINK and FarEAST shows that it may not only influence other markets but are also equally receptive to innovations that occur in the majority of these markets due to their high pairwise links. The evidence has major implications for investors in terms of the creation of strategies for the optimization of portfolios and asset allocation, the minimizing of downside risk, and hedging techniques.
M3 - Article
JO - Eurasian Economic Review
JF - Eurasian Economic Review
ER -