Investigating the diversifying or hedging nexus of cannabis cryptocurrencies with major digital currencies

Abstract

This paper sets out to explore the nexus between cryptocurrencies connected to cannabis production and the three highest capitalization digital currencies. Daily data are employed that cover the period 26 October 2017–3 January 2020. Generalized autoregressive schemes in the form of GARCH, EGARCH, TGARCH and GJR-GARCH are adopted in order to study volatility characteristics. Findings reveal that GARCH and GJR-GARCH specifications are most appropriate in the majority of cases. This reveals the existence of thresholds in the volatility of cannabis cryptocurrencies when examining their nexus with major digital currencies. This renders them riskier but also more attractive to speculators. Thereby, they abide by the overall character of such innovative forms of liquidity and investment. Overall, evidence indicates that Bitcoin presents medium to strong positive linkage with cannabis cryptocurrencies while Ripple is the most weakly connected to them. Thereby, none of the major digital currencies under scrutiny can serve as efficient hedger against cannabis cryptocurrencies. © 2021, The Author(s), under exclusive licence to Associazione per la Matematica Applicata alle Scienze Economiche e Sociali (AMASES).