Aggregate, asymmetric and frequency-based spillover among equity, precious metals, and cryptocurrency

ABSTRACT

This study evaluates the portfolio diversification potential of different classes of assets-equity, cryptocurrency and precious metals-using total, asymmetric and frequency-based spillover transmission framework. The VARbased generalized variance decomposition method is used to analyse the daily prices of S&P 500, bitcoin, gold, silver and platinum between April 2011 through January 2021. The results of aggregate spillover support bitcoin as a potential diversifier due to its isolation from other sets of assets. The decomposition of overall spillover into downside and upside spillover reveals a higher downside connectedness than the upside, suggesting an asymmetric interdependence amongst these markets. Moreover, the frequency based aggregate spillovers suggest the connectedness is driven mostly by the shorter time-horizons. The study provides important policy implications for market participants with distinct investment objectives.