Extreme return connectedness among gambling tokens, gambling ETFs, and other assets: the role of global uncertainties and portfolio implications

This study investigates return spillovers among gambling tokens, gambling exchange-traded funds (ETFs), and traditional financial assets using a Quantile Vector Autoregression (QVAR) framework, while evaluating portfolio diversification strategies and the role of global uncertainties. Empirical results demonstrate that connectedness across these markets intensifies significantly at extreme quantiles of the return distribution compared to median quantiles, indicating that gambling tokens function as effective diversifiers under normal market conditions. However, their diversification efficacy attenuates during periods of economic turmoil. Notably, gambling tokens exhibit robust tail risk mitigation during market downturns and recovery phases. Dynamic portfolios incorporating these tokens outperform static buy-and-hold strategies in risk management. Furthermore, Wavelet Quantile Regression (WQR) analysis reveals heterogeneous impacts of global uncertainties on return connectedness, with effects contingent on market conditions and time horizons. Specifically, uncertainty-driven spillovers are most pronounced during bearish regimes and at longer time scales. These findings underscore the importance of adaptive portfolio strategies and provide critical insights for investors seeking to balance diversification benefits with tail-risk resilience in an increasingly interconnected global financial market.