In this paper, the authors examine the interconnectedness of four blockchain exchange-traded funds (ETFs) with other financial markets, such as stocks and cryptocurrencies.
A multivariate dynamic conditional correlation model is used to model the relationship of blockchain ETFs with equity and cryptocurrency markets. Risk-minimizing hedge ratios are calculated following the methods used in studies by Kroner and Sultan (1993) and Sadorsky (2012).
The empirical results show a high degree of correlation of blockchain ETF returns with returns of the NASDAQ Composite Index, while the level of comovement with Bitcoin is relatively low.
The results imply that blockchain ETFs may be suitable for hedging purposes in a portfolio holding Bitcoin. Furthermore, investing in blockchain ETFs appears similar to investing in NASDAQ.
To the best of the authors’ knowledge, no studies have investigated the dynamic relationship of blockchain ETFs and other financial assets.
