Many empirical studies have found that Bitcoin and Ether fail to serve as hedge or safe-haven assets for financial markets, as they do not reduce risk when added to a benchmark stock portfolio. In contrast to these studies, we propose to examine the hedge or safe-haven properties of these assets within the framework of the cumulative prospect theory (CPT) and compare the results with those obtained using the traditional minimum-variance (MV) approach. This perspective provides new insights into this important research problem through the lens of the behavioral finance theory. We test four commonly analyzed assets—Bitcoin, Ether, Tether, and gold—as potential hedges or safe havens against stock market risk in the G7 and BRICS countries. Our findings indicate that gold and Tether may serve as effective hedge or safe-haven assets, whereas Bitcoin and Ether offer negligible utility for investors. Investors with MV preferences evaluate the hedging and safe-haven roles of these instruments in a manner similar to those with CPT preferences. • We investigate the hedging and safe-haven properties of gold, Bitcoin, Ether, and Tether for international stock markets. • Optimal portfolios are evaluated using Cumulative Prospect Theory (CPT). • CPT-optimal portfolios are compared with minimum variance portfolios. • Gold and Tether increase the CPT utility of a stock portfolio. • Bitcoin and Ether do not act as effective hedging or safe-haven assets.
Echaust et al. (Wed,) studied this question.