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

Abstract

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.