Cryptocurrency in the East: Exploring Ethereum's Link to Asian-Pacific Stock Indices through Multivariate-GARCH Approach

Tan, Zi Ling and Lim, Siok Jin (2023): Cryptocurrency in the East: Exploring Ethereum's Link to Asian-Pacific Stock Indices through Multivariate-GARCH Approach.

Abstract

This study investigates the dynamic interrelationship between Ethereum and key stock indices in the Asian-Pacific region, focusing on its potential role as a diversification tool for equity investors. Utilizing a Multivariate Generalized Autoregressive Conditional Heteroskedasticity Dynamic Conditional Correlation (MGARCH-DCC) model, we analyse daily closing prices from November 2018 to November 2023 across four developed Asian stock markets—China, Hong Kong, Japan, and Malaysia—alongside Ethereum. The findings reveal that Ethereum exhibits distinctive volatility patterns compared to traditional stock indices, with conditional correlations fluctuating significantly over time. Notably, Ethereum demonstrates weak correlations with Malaysian stocks, suggesting potential diversification benefits for investors in this market. The study contributes to the growing literature on cryptocurrency's financial integration, offering insights into the hedging properties of Ethereum amidst evolving market dynamics in the Asian-Pacific region.

• Item Type: MPRA Paper
• Language: English
• Keywords: Ethereum, Asian-Pacific stock indices, Multivariate-GARCH, Dynamic Conditional Correlation (DCC), Cryptocurrency, Financial integration, Diversification, Volatility, Hedging, Emerging markets
• Subjects: G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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