Connectedness between Defi assets and equity markets during COVID-19: A sector analysis.

This paper explores the dynamic connectedness between Defi assets and sector stock markets focused around the COVID-19 pandemic crisis. For that aim, this research applies the TVP-VAR model, and it also computes the optimal weights and hedge ratios for the Defi assets-sector equity portfolios using the DCC-GARCH model. Our main findings reveal that static connectedness is slightly economy- and sector-dependent. Regarding the dynamic connectedness, as expected, the total spillover index changes over time, showing a cruel impact of the global pandemic declaration. Net spillover indices show relevant differences between the Defi assets and certain sectors (net receivers) and sectors such as industrials, materials and information technology (time-varying net transmitters). Finally, the optimal hedge ratios reveal similar levels of coverage in all the periods analyzed, with slight upturns in the cost of such coverage in the crisis period caused by COVID-19.

Tail connectedness between lending/borrowing tokens and commercial bank stocks

This paper explores a fresh topic about the tail connectedness between decentralized- lending/borrowing tokens and centralized-commercial bank stocks, regarded as substitutes. Using the methodological approach proposed by Ando et al. (2022), we compare connectedness results at extreme (lower and upper) quantile levels. DeFis and traditional bank stocks may show positive but low spillovers, thus DeFi lending tokens would constitute a new commercial banking asset class. In addition, the tails of the distribution would show excess return (static and dynamic) spillover compared to the mean and median, indicating an increased sensitivity in the extreme market conditions (such as the COVID-19 pandemic), especially in the left tail. The dynamic net spillovers may vary over time for all markets and increase during periods of uncertainty, in line with very recent studies. Also, RTD (Relative Tail Dependence) rejects quasy-symmetry due to its time-variation, ranging between positive and negative values. Therefore, traders and portfolio managers would need to adjust their positions depending on the time-varying net spillovers.

Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication

The paper examines the return and volatility transmission between NFTs, Defi assets, and other assets (oil, gold, Bitcoin, and S&P 500) using the TVP-VAR framework. The results report weak static return and volatility spillovers between NFTs and Defi assets and selected markets, showing that these new digital assets are still relatively decoupled from traditional asset classes. Bitcoin, oil, and half of the NFTs and Defi assets are net transmitters of return and volatility spillovers, whereas rest of the markets are net recipients of spillovers. Our findings show that the dynamic return and volatility connectedness become higher during the initial phase of the COVID-19 pandemic and the cryptocurrency bubble of 2021. We also compute the static and dynamic optimal weights, hedge ratios, and hedging effectiveness for the portfolios of NFTs/other asset and Defi asset/other asset and show that investors and portfolio managers should consider adding NFTs and Defi assets in their portfolios of gold, oil, and stock markets to achieve diversification benefits.