The effect of diversification of virtual currencies on reducing systemic risk using the soft transfer regression model approach

Document Type : Scientific paper

Authors

1 PhD student in financial management, Department of Management, Faculty of Management, Islamic Azad University, Qom Branch, Qom

2 Assistant Professor, Department of Islamic Economics, Faculty of Economic and Administrative Sciences, Qom University

3 استادیار گروه مدیریت دانشگاه آزاد اسلامی واحد قم

10.22080/mrl.2024.27081.2078

Abstract

Cryptocurrencies such as Bitcoin, Ethereum, and Tether are known as coins, and by using encryption protocols or very complex coding systems, they encrypt the transfer of sensitive information and secure their exchange unit. The transactions of these currencies are recorded in the blockchain system and their integrity can be verified. One of the most important topics and issues raised in the financial markets is the awareness of the systemic risk of the market because it plays a significant role in the decision making of investors. The purpose of this study was to estimate the effect of diversification of virtual currencies on reducing systemic risk in the period of 2017-2024. In this regard, the CoVaR method was used to estimate the systemic risk. Also, in order to estimate the research model, mild transfer regression (STR) was used. The statistical population of the present study of the cryptocurrency market and the statistical sample included Bitcoin, Ethereum, Tether, Litecoin, and Binance Coin. The results showed that the systemic risk in Bitcoin was much higher than other cryptocurrencies. In addition, it was observed that the effect of cryptocurrency portfolio diversification index on systemic risk is negative and non-linear, and with an increase in the diversification of the cryptocurrency asset portfolio, it has led to a decrease in the systemic risk of all studied cryptocurrencies.

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History

  • Receive Date: 04 May 2024
  • Revise Date: 30 July 2024
  • Accept Date: 18 August 2024

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