Cryptocurrencies; Precious metals; Quantile covariate unit root; Quantile cross spectral; Causality in quantiles
The emergence of new asset classes since the last couple decades has aroused interest of the international investment community to earn optimal returns on their portfolios by including such asset classes. Among these assets, cryptocurrencies and precious metals present opportunity for investors to yield optimal portfolio returns. Our work aims to investigate the relationship between cryptocurrencies and precious metals returns based on daily pricing data from March 2017 to August 2019. Our study employs application of quantile cross spectral framework to investigate changing correlation patterns across different quantile distribution under short-, medium- and long run investment horizon. We also use non-linear causality in quantile framework to investigate spillover phenomena for returns as well as variance between these two asset classes. Our results highlights that in short-run, copper provides maximum diversification opportunities for investors with all cryptocurrencies, both under extreme market conditions. However, for medium- and long-run investment periods, precious metals under extreme positive returns distribution are not integrated with the extreme negative cryptocurrencies returns, thereby implying diversification opportunities for investors.