Diversification benefits of NFTs for conventional asset investors: Evidence from CoVaR with higher moments and optimal hedge ratios

This study investigates the risk and returns on one of the newest digital asset classes instruments, non-fungible tokens (NFTs), by accounting for tail dependence of higher-order moments and portfolio characteristics. We used a wide range of asset classes, encompassing equites, fixed in- come securities, and commodities, and document the desirable hedging and portfolio attributes of NFTs by employing Conditional Value-at-Risk (CoVaR) and Delta CoVaRs with various copula func- tions. We found that NFTs exhibit beneficial investment and hedging attributes under all market conditions, including the Covid-19 pandemic. Our findings have important implications for in- vestors, risk managers, and regulators.

Automated summary

This study investigates the risk and returns of non-fungible tokens (NFTs), one of the newest digital assets, by considering tail dependence and portfolio characteristics. Using various asset classes, the study finds that NFTs have favorable investment and hedging attributes under all market conditions, including the Covid-19 pandemic. The findings of this study have important implications for investors, risk managers, and regulators.