Can gold- and USD-backed stablecoins hedge against US stock market volatility? Evidence from a quantile coherency approach

Emerging markets are increasingly appealing to market participants seeking alternative investments. Using the Quantile Coherency method, this study investigates the interrelatedness between stablecoins backed by two types of traditional assets (gold and US dollars) and the volatility indices of the US stock market across different frequency domains and market conditions. The potential of gold- and USD-backed stablecoins to hedge stock market volatility varies. There is a stronger connection under long-term and extreme conditions than in the short-/medium- and normal markets. The empirical results suggest that the USD-backed stablecoins should be used as hedging assets against US stock market volatility (typically showing a non-negative correlation) rather than the gold-backed stablecoins (which often exhibit a negative correlation). These findings provide valuable insights for market participants and academic research.