RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES
This study investigates the interconnected dynamics among diverse digital currencies, specifically focusing on risk-adjusted returns, tail risks, dynamic spillovers, and portfolio implications. Unlike prior research, which typically examines individual digital currency classes separately or in limit...
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| Format: | Article |
| Language: | English |
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Bank Indonesia
2025-05-01
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| Series: | Journal of Islamic Monetary Economics and Finance |
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| Online Access: | https://jimf-bi.org/index.php/JIMF/article/view/2771 |
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| author | Zaäfri Ananto Husodo Md. Bokthiar Hasan Humaira Tahsin Rafia Masagus M. Ridhwan Gazi Salah Uddin Muhammad Budi Prasetyo |
| author_facet | Zaäfri Ananto Husodo Md. Bokthiar Hasan Humaira Tahsin Rafia Masagus M. Ridhwan Gazi Salah Uddin Muhammad Budi Prasetyo |
| author_sort | Zaäfri Ananto Husodo |
| collection | DOAJ |
| description | This study investigates the interconnected dynamics among diverse digital currencies, specifically focusing on risk-adjusted returns, tail risks, dynamic spillovers, and portfolio implications. Unlike prior research, which typically examines individual digital currency classes separately or in limited combinations, our study integrates six distinct classes of digital currencies, namely Islamic gold-backed cryptocurrencies, green cryptocurrencies, gold-backed stablecoins, non-fungible tokens (NFTs), decentralized finance (DeFi) assets, and conventional cryptocurrencies, enabling direct comparisons of risk-return dynamics and systemic interdependencies. Using Value at Risk (VaR), Conditional Value at Risk (CVaR), quantile-based Vector Autoregression (Quantile VAR), and network connectedness analysis, we provide nuanced insights into the behavior of these assets across various market conditions (bullish, bearish, and normal states). Our results demonstrate that conventional cryptocurrencies and DeFi assets consistently deliver positive risk-adjusted returns, whereas Islamic gold-backed cryptocurrencies exhibit notably higher downside risks and negative performance. Spillover analysis reveals pronounced connectedness, particularly in extreme market states, with conventional cryptocurrencies identified as primary transmitters of market shocks and gold-backed stablecoins and Islamic gold-backed cryptocurrencies as recipients. Our findings underscore significant diversification opportunities offered by pairs of assets exhibiting low connectedness, especially in normal market conditions. Furthermore, portfolio optimization analysis highlights the superior hedging effectiveness and lower hedging costs associated with gold-backed stablecoins and conventional cryptocurrency pairs. This comprehensive investigation delivers critical implications for investors, suggesting informed strategies for asset allocation and risk management. Policymakers can also utilize our insights to design adaptive regulatory frameworks that address systemic risks arising from digital currency markets.
ACKNOWLEDGMENT
Gazi Salah Uddin gratefully acknowledges the Faculty of Economics and Business, Universitas Indonesia, for the academic appointment as Adjunct and Visiting Professor, and expresses sincere appreciation for the institutional support and research facilities extended during his residency, which significantly contributed to the completion of this work. |
| format | Article |
| id | doaj-art-4408069469ef45a9a4e36aa157c310ad |
| institution | DOAJ |
| issn | 2460-6146 2460-6618 |
| language | English |
| publishDate | 2025-05-01 |
| publisher | Bank Indonesia |
| record_format | Article |
| series | Journal of Islamic Monetary Economics and Finance |
| spelling | doaj-art-4408069469ef45a9a4e36aa157c310ad2025-08-20T02:43:36ZengBank IndonesiaJournal of Islamic Monetary Economics and Finance2460-61462460-66182025-05-0111226930610.21098/jimf.v11i2.27712040RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIESZaäfri Ananto Husodo0https://orcid.org/0000-0002-7127-0775Md. Bokthiar Hasan1https://orcid.org/0000-0002-5390-077XHumaira Tahsin Rafia2Masagus M. Ridhwan3https://orcid.org/0000-0003-2188-9120Gazi Salah Uddin4Muhammad Budi Prasetyo5Department of Management, Faculty of Economics and Business, Universitas Indonesia, IndonesiaDepartment of Finance and Banking, Islamic University, Kushtia, BangladeshDepartment of Finance and Banking, Islamic University, Kushtia, BangladeshBank Indonesia Institute and Perbanas Institute, IndonesiaDepartment of Management and Engineering, Linköping University, Sweden, and Department of Management, Faculty of Economics and Business, Universitas Indonesia, Indonesia Department of Management, Faculty of Economics and Business, Universitas Indonesia, IndonesiaThis study investigates the interconnected dynamics among diverse digital currencies, specifically focusing on risk-adjusted returns, tail risks, dynamic spillovers, and portfolio implications. Unlike prior research, which typically examines individual digital currency classes separately or in limited combinations, our study integrates six distinct classes of digital currencies, namely Islamic gold-backed cryptocurrencies, green cryptocurrencies, gold-backed stablecoins, non-fungible tokens (NFTs), decentralized finance (DeFi) assets, and conventional cryptocurrencies, enabling direct comparisons of risk-return dynamics and systemic interdependencies. Using Value at Risk (VaR), Conditional Value at Risk (CVaR), quantile-based Vector Autoregression (Quantile VAR), and network connectedness analysis, we provide nuanced insights into the behavior of these assets across various market conditions (bullish, bearish, and normal states). Our results demonstrate that conventional cryptocurrencies and DeFi assets consistently deliver positive risk-adjusted returns, whereas Islamic gold-backed cryptocurrencies exhibit notably higher downside risks and negative performance. Spillover analysis reveals pronounced connectedness, particularly in extreme market states, with conventional cryptocurrencies identified as primary transmitters of market shocks and gold-backed stablecoins and Islamic gold-backed cryptocurrencies as recipients. Our findings underscore significant diversification opportunities offered by pairs of assets exhibiting low connectedness, especially in normal market conditions. Furthermore, portfolio optimization analysis highlights the superior hedging effectiveness and lower hedging costs associated with gold-backed stablecoins and conventional cryptocurrency pairs. This comprehensive investigation delivers critical implications for investors, suggesting informed strategies for asset allocation and risk management. Policymakers can also utilize our insights to design adaptive regulatory frameworks that address systemic risks arising from digital currency markets. ACKNOWLEDGMENT Gazi Salah Uddin gratefully acknowledges the Faculty of Economics and Business, Universitas Indonesia, for the academic appointment as Adjunct and Visiting Professor, and expresses sincere appreciation for the institutional support and research facilities extended during his residency, which significantly contributed to the completion of this work.https://jimf-bi.org/index.php/JIMF/article/view/2771digital currency, tail risks, dynamic spillovers, quantile var, portfolio management, islamic cryptocurrency, green cryptocurrency. |
| spellingShingle | Zaäfri Ananto Husodo Md. Bokthiar Hasan Humaira Tahsin Rafia Masagus M. Ridhwan Gazi Salah Uddin Muhammad Budi Prasetyo RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES Journal of Islamic Monetary Economics and Finance digital currency, tail risks, dynamic spillovers, quantile var, portfolio management, islamic cryptocurrency, green cryptocurrency. |
| title | RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES |
| title_full | RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES |
| title_fullStr | RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES |
| title_full_unstemmed | RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES |
| title_short | RISK-ADJUSTED RETURNS AND SPILLOVER DYNAMICS AMONG EMERGING DIGITAL CURRENCIES |
| title_sort | risk adjusted returns and spillover dynamics among emerging digital currencies |
| topic | digital currency, tail risks, dynamic spillovers, quantile var, portfolio management, islamic cryptocurrency, green cryptocurrency. |
| url | https://jimf-bi.org/index.php/JIMF/article/view/2771 |
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