This paper uses a dynamic conditional correlation model to examine whether Bitcoin can act as a hedge and safe haven for major world stock indices, bonds, oil, gold, the general commodity index and the US dollar index. Daily and weekly data span from July 2011 to December 2015. Overall, the empirical results indicate that Bitcoin is a poor hedge and is suitable for diversification purposes only. However, Bitcoin can only serve as a strong safe haven against weekly extreme down movements in Asian stocks. We also show that Bitcoin hedging and safe haven properties vary between horizons.

In this study, we analyse whether Bitcoin can hedge uncertainty using daily data for the period of 17 th March, 2011, to 7 th October, 2016. Global uncertainty is measured by the first principal component of the VIXs of 14 developed and developing equity markets. We first use wavelets to decompose Bitcoin returns into various frequencies, i.e., investment horizons. Then, we apply standard OLS regressions and observe that uncertainty negatively affects raw Bitcoin return and its longer-term movements. However, given the heavy tails of the variables, we rely on quantile methods and reveal much more nuanced and interesting results. Quantile regressions indicate that Bitcoin does act as a hedge against uncertainty, that is, it reacts positively to uncertainty at both higher quantiles and shorter frequency movements of Bitcoin returns. Finally, when we use quantile-on-quantile regressions, we observe that hedging is observed at shorter investment horizons, and at both lower and upper ends of Bitcoin returns and global uncertainty.

No abstract

Prior studies on the price formation in the Bitcoin market consider the role of Bitcoin transactions at the conditional mean of the returns distribution. This study employs in contrast a non-parametric causality-in-quantiles test to analyse the causal relation between trading volume and Bitcoin returns and volatility, over the whole of their respective conditional distributions. The nonparametric characteristics of our test control for misspecification due to nonlinearity and structural breaks, two features of our data that cover 19th December 2011 to 25th April 2016. The causality-in-quantiles test reveals that volume can predict returns-except in Bitcoin bear and bull market regimes. This result highlights the importance of modelling nonlinearity and accounting for the tail behaviour when analysing causal relationships between Bitcoin returns and trading volume. We show, however, that volume cannot help predict the volatility of Bitcoin returns at any point of the conditional distribution.

No abstract

This study applies a set of measures developed by Diebold and Yilmaz (2012, 2016) to examine connectedness via return and volatility spillovers across six large cryptocurrencies from August 7, 2015 to February 22, 2018. Regardless of the sign of returns, the results show that Litecoin is at the centre of the connected network of returns, followed by the largest cryptocurrency, Bitcoin. This finding implies that return shocks arising from these two cryptocurrencies have the most effect on other cryptocurrencies. Further analysis shows that connectedness via negative returns is largely stronger than via positive ones. Ripple and Ethereum are the top recipients of negative-return shocks, whereas Ethereum and Dash exhibit very weak connectedness via positive returns. Regarding volatility spillovers, Bitcoin is the most influential, followed by Litecoin; Dash exhibits a very weak connectedness, suggesting its utility for hedging and diversification opportunities in the cryptocurrency market. Taken together, results imply that the importance of each cryptocurrency in return and volatility connectedness is not necessarily related to its market size. Further analyses reveal that trading volume and global financial and uncertainty effects as well as the investment-substitution effect are determinants of net directional spillovers. Interestingly, higher gold prices and US uncertainty increase the net directional negative-return spillovers, whereas they do the opposite for net directional positive-return spillovers. Furthermore, gold prices exhibit a negative sign for net directional-volatility spillovers, whereas US uncertainty shows a positive sign. Economic actors interested in the cryptocurrency market can build on our findings when weighing their decisions.

In this paper, we show evidence of a dramatic change in the structure and time-varying patterns of return connectedness across various assets (gold, crude oil, world equities, currencies, and bonds) around the COVID-19 outbreak. Using the TVP-VAR connectedness approach, the results show that the dynamic total connectedness across the five assets was moderate and quite stable until early 2020. After that, the total connectedness spikes and the structure of the network of connectedness alters, which concurs with the COVID-19 outbreak. The equity and USD indices are the primary transmitters of shocks before the outbreak, whereas the bond index becomes the main transmitters of shocks during the COVID-19 outbreak. However, the USD index is a net receiver of shocks to other assets during the outbreak period. Furthermore, using a recently developed newspaper-based index of uncertainty in financial markets due to infectious diseases to capture the recent impact of Covid-19, we find that connectedness is positively related to this index, and increases at higher levels (conditional quantiles) of connectedness. Overall, our results reflect the speedy disturbing effects of the COVID-19 outbreak, which matters to the formulations of policies seeking to achieve financial stability. The results also indicate a possibility to threaten investors' portfolios and fade the benefits of diversification.

No abstract