Dynamic interactions between metaverse-related cryptocurrencies and traditional financial assets: evidence from a TVP-VAR model

Purpose To explore the relationships between major metaverse-related cryptocurrencies and traditional financial assets, as well as their hedging capabilities over time. Design/methodology/approach The study period spans from 1 September 2021 to 31 January 2025. Using the time-varying parameter vector autoregressive (TVP-VAR) method, this study examines the dynamic relationships between Bitcoin and Ethereum, the ten most capitalised metaverse-related cryptocurrencies, and traditional financial assets. As a robustness measure, the DCC-GARCH model is used to calculate optimal portfolio weights, hedge ratios, and hedging effectiveness, providing a comprehensive evaluation of risk mitigation. Findings The results reveal that the relationships between assets intensify during periods of turmoil. Intra-market relationships are stronger than cross-market relationships, traditional markets offer more effective hedging and crypto markets exhibit greater variability when constructing hedged portfolios. Originality/value These findings provide a deeper understanding of this new technology and valuable practical implications for investors, regulators, researchers, and society.