Cryptocurrencies as Volatility Shock Hedges: A Regime-Dependent Fuzzy Copula Analysis of Crypto, Oil, and Equity Markets

In the context of increasing integration across global financial markets, understanding the dynamic relationships between energy, digital assets, and equity markets is crucial for effective portfolio management and risk mitigation. Purpose: This study examines the potential hedging benefits of cryptocurrencies against volatility shocks by analyzing nonlinear and regime-dependent co-movements among crude oil, Bitcoin, and equity markets. Method: The research utilizes a fuzzy copula framework that incorporates Gaussian, Student-t, Clayton, and Gumbel copulas to capture asymmetric and tail-dependent dependence structures. Fuzzy-weighted dependence measures are employed to evaluate dynamic linkages across low-, medium-, and high-volatility regimes, facilitating smooth regime transitions and localized dependence analysis. Results: The findings indicate a weak average dependence under normal market conditions, suggesting limited hedging effectiveness of cryptocurrencies. However, statistically significant upper‑tail dependence is observed during periods of heightened volatility, indicating a deterioration in diversification benefits under market stress. Contributions: The study provides insights for investors, portfolio managers, and policymakers by highlighting the regime-contingent hedging role of cryptocurrencies. The results emphasize the importance of nonlinear and regime-sensitive models in portfolio allocation, risk management, and financial stability assessment.

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