Journal of Business and
Economic Management 10(3): 046-056, May 2022
DOI: 10.15413/jbem.2022.0702
ISSN 2315-7755
2022 Academia Publishing
Abstract
Is diamond-backed Cryptocurrency as good as the
underlying Gem in hedging equity risk?
Accepted 16th
May, 2022
Xiang Gao1, Kees G.
Koedijk2, Hua Wang3* and Zhan Wang1
1Research Center of Finance, Shanghai
Business School in Shanghai, China 2Banking and Finance at School of Economics,
Utrecht University in Utrecht, the Netherlands; and CEPR
in London, U.K. 3Financial Innovation and FinTech Research
Center, Shenzhen Technology University in Shenzhen,
China.
Diamond as an asset class stands out in hedging risk for
equity positions. However, such merit is difficult to
realize due to the lack of efficient markets. This
article hence explores the possibility of using
diamond-backed coins to obtain exposure to actual
diamonds. In specific, the authors measure the hedging
performance of the two most prominent cryptocurrencies
linked to diamonds and choose PinkCoin with the longest
trading data span to compare with a benchmark diamond
price aggregate. The authors find that these coins can
indeed safeguard portfolios against equity market
fluctuations, especially in market downturns. Moreover,
they display the characteristic of enhancing portfolio
diversification in a standard mean-variance frontier
setup. Cryptocurrency’s high exchangeability and
volatility have been reconciled with diamond’s
safe-haven feature, thus creating unique diversification
benefits that can match actions of trading physical
gemstones. This implication is of great interest to
investors who prefer diamonds to be an addition to their
portfolios but worry about liquidity and authenticity.
This is an open access article
published under the terms of the
Creative Commons Attribution
License, which permits unrestricted use, distribution, and
reproduction in any medium, provided the original work is
properly cited.
Cite this article as:
Gao X, Koedijk KG, Wang H, Wang Z (2022). Is
diamond-backed Cryptocurrency as good as the underlying Gem in hedging equity
risk?. J. Bus. Econ. Manag.
10(3):
046-056.
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