Bitcoin, Fintech stocks and Asian Pacific equity markets: a dependence analysis with implications for portfolio management

Abstract

Purpose

This study aims to provide empirical evidence on the return and volatility spillover structures between Bitcoin, Fintech stocks and Asian-Pacific equity markets over time and during different market conditions, and their implications for portfolio management.

Design/methodology/approach

We use Time-varying parameter vector autoregressive and quantile frequency connectedness approach models for the connectedness framework, in conjunction with Diebold and Yilmaz’s connectivity approach. Additionally, we use the minimum connectedness portfolio model to highlight implications for portfolio management.

Findings

Regarding the uncertainty of the whole system, we show a small contribution from Bitcoin and Fintech, with a higher contribution from the four Asian Tigers (Taiwan, Singapore, Hong Kong and Thailand). The quantile and frequency analyses also demonstrate that the link among assets is symmetric, with short-term spillovers having the largest influence. Finally, Bitcoins and Fintech stocks are excellent diversification and hedging instruments for Asian equity investors.

Practical implications

There is an instantaneous, symmetric and dynamic return and volatility spillover between Asian stock markets, Fintech and Bitcoin. This conclusion should be considered by investors and portfolio managers when creating risk diversification strategies, as well as by policymakers when implementing their financial stability policies.

Originality/value

The study’s major contribution is to analyze the volatility spillover between Bitcoin, Fintech and Asian stock markets, which is dynamic, symmetric and immediate.

Citation

Abakah, E.J.A., Trabelsi, N., Tiwari, A.K. and Nasreen, S. (2024), "Bitcoin, Fintech stocks and Asian Pacific equity markets: a dependence analysis with implications for portfolio management", Journal of Risk Finance, Vol. 25 No. 5, pp. 792-839. https://doi.org/10.1108/JRF-04-2024-0095