Spillovers and hedging effectiveness between islamic cryptocurrency and metal markets: Evidence from the COVID-19 outbreak

• Published in: International review of economics & finance 2024-04, Vol.92, p.1126-1151
• Main Authors: Yousaf, Imran, Ali, Shoaib, Marei, Mohamed, Gubareva, Mariya
• Format: Article
• Language: English
• Subjects: COVID-19; Islamic cryptocurrencies; Metal markets; Spillovers
• ISSN: 1059-0560
• DOI: 10.1016/j.iref.2024.02.075

This study investigates the static and dynamic interdependence of the Islamic cryptocurrency and metal markets using the TVP-VAR methodology. The empirical findings suggest that Islamic cryptocurrencies are the recipients of both return and volatility spillovers, while most metals act as transmitters of these spillovers. The dynamic spillovers are intensified in the COVID-19 period compared to the pre-COVID-19 period. We find that the return connectedness is short-lived lived whereas the volatility connectedness is a long-term phenomenon. Finally, we also compute the optimal weights, hedge ratios, and hedging effectiveness during COVID-19. The results suggest that investors should add Islamic cryptocurrencies to metals portfolios in order to get maximum risk-adjusted returns during the pandemic crisis. Our findings are helpful for portfolio managers and investors in making decisions regarding diversification, portfolio allocation, forecasting, and hedging. •Investigating static and dynamic spillovers between Islamic cryptocurrency and metal markets.•Islamic cryptocurrencies (metals) are recipients (transmitters) of return and volatility spillovers.•Time-varying spillovers are intensified during the COVID-19 pandemic.•Return spillovers are short-lived, contrasting with the long-term nature of volatility spillovers.•Following portfolio theory, we suggest adding Islamic crypto to metal portfolios to diversify risk.