Connectedness between Gold and Cryptocurrencies in COVID‐19 Pandemic: A Frequency‐Dependent Asymmetric and Causality Analysis

Abstract

We employ a frequency-dependent asymmetric and causality analysis to investigate the connectedness between gold and cryptocurrencies during the COVID-19 pandemic. Hence, the variational mode decomposition-based quantile regression is utilised. Findings from the study divulge that the variational mode functions at the lower quantiles are mostly significant and negative indicating that gold acts as a safe haven, a diversifier at most market conditions with insignificant coefficients, and a hedge at normal market conditions for most cryptocurrencies at various investment horizons. Particularly, hedging benefits mostly occur in the short- and medium-term for Bitcoin and Ripple, as well as Bitcoin and Dogecoin in the long-term with gold. This implies that there is high persistence in the hedging properties of gold with Bitcoin, followed by Ripple. We notice more significant relationship between gold and some cryptocurrencies in the long-term of the COVID-19 pandemic relative to the medium-term emphasising the delayed responses of prices to information. Investors are recommended to be observant and mindful of investing in these markets due to the different dynamics.

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A Nonlinear Approach to Quantifying Investor Fear in Stock Markets of BRIC

“…To enhance the study's conclusions, the application of decomposition approaches would minimise noise (weak signals) while actual signals are retained [39,44]. e use of decomposition techniques has been prominent in recent finance literature (see e.g., [15,17,29,32,39,40,43]).…”

“…ese IMFs are thought to be time scales (amplitude-modulated-frequency-modulated signals) [39,40,72]. e VMD decomposes input signals into main modes, termed variational mode functions (VMFs) that duplicate the input signal with changing sporadic quality.…”

“…ird, we cover the COVID-19 pandemic era, which is noted to have caused significant changes in fundamental market dynamics [14,20,31,[39][40][41][42]. As the pandemic persists, covering this period is essential to produce findings that would influence effective hedging strategies.…”