Managing cryptocurrency risk exposures in equity portfolios: Evidence from high-frequency data

• This study examines cryptocurrency risk in equity portfolios using high-frequency data. • Bitcoin’s contribution to active equity portfolio risk has grown significantly over time. • Intraday returns improve the forecast accuracy of equity portfolio sensitivities to crypto risks. • Direct hedging and stock constraints are proposed for managing cryptocurrency exposures. We investigate the evolving relationships between cryptocurrencies and equity portfolios and find that Bitcoin’s contributions to the active risks of equity portfolios have grown over time, exceeding 10% in defensive strategies. This underscores the increasing importance of investment professionals quantifying and managing crypto-related risk exposures in their portfolios, a task for which we provide guidance. For risk measurement, we use intraday returns to significantly improve the forecast accuracy of equity portfolio sensitivities to cryptocurrency risks. For risk management, we advocate direct hedging for optimal risk reduction and suggest using stock selection constraints as an alternative approach to limit the influence of cryptocurrencies on portfolio risk exposures.