To read this content please select one of the options below:

An empirical analysis of the dynamic impact of DeFi on GCC foreign exchange forward markets: portfolio implication

Ho Thuy Tien (Faculty of Finance and Banking, University of Finance-Marketing, Ho Chi Minh City, Vietnam)
Nguyen Mau Ba Dang (Faculty of Finance and Banking, University of Finance-Marketing, Ho Chi Minh City, Vietnam)
Ngo Thai Hung (Faculty of Economics and Law, University of Finance-Marketing, Ho Chi Minh City, Vietnam)

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 29 December 2023

Issue publication date: 16 January 2024

108

Abstract

Purpose

This paper aims to investigate the conditional equicorrelation and cross-quantile dependence between the DeFi, European and GCC currency markets (Oman, Qatar, Bahrain, Kuwait, Saudi Arabia and the United Arab Emirates).

Design/methodology/approach

This study applies the GARCH-DECO model and cross-quantilogram framework.

Findings

The findings reveal evidence of weak and negative average equicorrelations between the examined markets through time, excluding the COVID-19 outbreak and Russia–Ukraine conflict, which is consistent with the literature examining relationships in different markets. From the cross-quantilogram model, the authors note that the dependence between DeFi, EURO and GCC foreign exchange rate markets is greatest in the short run and diminishes over the medium- and long-term horizons, indicating rapid information processing between the markets under consideration, as most innovations are transmitted in the short term.

Practical implications

For the pairs of DeFi and currency markets, the static and dynamic optimal weights and hedging ratios are also estimated, providing new empirical data for portfolio managers and investors.

Originality/value

To the best of the authors’ knowledge, this is one of the most important research looking into the conditional correlation and predictability between the DeFi, EURO and GCC foreign exchange markets. More importantly, this study provides the first empirical proof of the safe-haven, hedging and diversification qualities of DeFi, EURO and GCC currencies, and this work also covers the COVID-19 pandemic and the Russia–Ukraine war with the use of a single dynamic measure produced by the GARCH-DECO model. In addition, the directional predictability between variables under consideration using the cross-quantilogram model is examined, which can be capable of capturing the asymmetry in the quantile dependent structure. The findings are helpful for both policymakers and investors in improving their trading selections and strategies for risk management in different market conditions.

Keywords

Acknowledgements

The authors are grateful to the anonymous referees of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply.

Funding: This research is funded by University of Finance-Marketing, Ho Chi Minh City, Vietnam.

Author contributions: Ho Thuy Tien, Supervision, Conceptualization, Writing – review and editing, Project administration. Nguyen Mau Ba Dang, Writing – review and editing, Methodology, Writing – original draft. Ngo Thai Hung, Methodology, Software, Data curation, Writing – original draft.

Availability of supporting data: Please contact author for data and program codes requests. R and MATLAB are used to organize data.

Competing interests: The authors declare that they have no competing interests.

Citation

Tien, H.T., Dang, N.M.B. and Hung, N.T. (2024), "An empirical analysis of the dynamic impact of DeFi on GCC foreign exchange forward markets: portfolio implication", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 17 No. 1, pp. 170-194. https://doi.org/10.1108/IMEFM-06-2023-0228

Publisher

:

Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

Related articles