Tail Risk Network Effects in the Cryptocurrency Market during the COVID-19 Crisis

The Singapore Economic Review, Forthcoming

25 Pages Posted: 23 Dec 2020 Last revised: 27 Dec 2022

See all articles by Rui Ren

Rui Ren

Humboldt University of Berlin

Michael Althof

Humboldt University of Berlin - Institute for Statistics and Econometrics

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute; Academy of Economic Studies, Bucharest

Date Written: December 22, 2020

Abstract

Cryptocurrencies are gaining momentum in investor attention, are about to become a new asset class, and may provide a hedging alternative against the risk of devaluation of fiat currencies following the COVID-19 crisis. In order to provide a thorough understanding of this new asset class, risk indicators need to consider tail risk behaviour and the interdependencies between the cryptocurrencies not only for risk management but also for portfolio optimization. The tail risk network analysis framework proposed in the paper is able to identify individual risk characteristics and capture spillover effect in a network topology. Finally we construct tail event sensitive portfolios and consequently test the performance during an unforeseen COVID-19 pandemic.

Keywords: Cryptocurrencies, Network Dynamics, Portfolio Optimization, Quantile Regression, Systemic Risk, Financial Risk Meter

JEL Classification: C01, C58, G01, G11, O31

Suggested Citation

Ren, Rui and Althof, Michael and Härdle, Wolfgang Karl, Tail Risk Network Effects in the Cryptocurrency Market during the COVID-19 Crisis (December 22, 2020). The Singapore Economic Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3753421 or http://dx.doi.org/10.2139/ssrn.3753421

Rui Ren (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Michael Althof

Humboldt University of Berlin - Institute for Statistics and Econometrics ( email )

Spandauer Str. 1
Berlin, D-10178
Germany

HOME PAGE: http://irtg1792.hu-berlin.de

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Academy of Economic Studies, Bucharest ( email )

Bucharest
Romania

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
408
Abstract Views
2,113
Rank
137,918
PlumX Metrics