Crude oil price and cryptocurrencies: Evidence of volatility connectedness and hedging strategy

Okorie, David Iheke; Lin, Boqiang

doi:10.1016/j.eneco.2020.104703

Cited by 175 publications

(78 citation statements)

References 34 publications

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“…The time-varying correlations are found to be positive for the pair gold-oil, but negative for the pairs Bitcoin-oil and Bitcoin-gold. Okorie and Lin (2020) look at the volatility transmission between oil and ten cryptocurrency markets using the VAR-MGARCH-GJR-BEKK model and find that volatility transmission is bidirectional between the Bit Capital vendor and the oil market. Moreover, unidirectional volatility spill-over is observed from oil to the Bitcoin cash market.…”

Section: Oil and Goldmentioning

confidence: 99%

Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

Yousaf

Ali

Bouri

et al. 2021

Economic Research-Ekonomska Istraživanja

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This study uses hourly data to analyse the return and volatility transmission of oil-gold and oil-Bitcoin pairs during the pre-COVID-19 and COVID-19 periods. The results show that the return transmissions vary across the two periods for both pairs. There is a unidirectional volatility spill-over from gold to oil in the pre-COVID-19 period, and from oil to gold during the COVID-19 period. There is a significant volatility spill-over from Bitcoin to oil during the pre-COVID-19 period, whereas no evidence of volatility spill-over between oil and Bitcoin is shown during the COVID-19 period. Based on optimal weights, investors should increase their investments in, (a) gold for a portfolio of oil-gold, and (b) Bitcoin for a portfolio of oil-Bitcoin during the COVID-19 period. All hedge ratios are higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. The results of hedging effectiveness reveal that the risk-adjusted returns can be improved by constructing a portfolio of oil-gold and oil-Bitcoin during both sample periods. Further results reveal that gold is a strong safe haven and a hedge for the oil market, while Bitcoin serves as a diversifier for the oil market during the COVID-19 period.

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Section: Oil and Goldmentioning

confidence: 99%

Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

Yousaf

Ali

Bouri

et al. 2021

Economic Research-Ekonomska Istraživanja

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show abstract

“…Meanwhile, the ensuing disruptions to global demand and supply chains have engendered irregular movements in energy prices (see also, Iyke and Ho 2020 ; Iyke 2020a ). Although the motivation to hedge oil market risks is justified by studies suggesting the search for alternative hedging options for oil market risks (see Selmi et al 2018 ; Olson et al 2019 ; Sharma and Rodriguez 2019 ; Okorie and Lin 2020 ), the pandemic period offers yet greater motivation in this regard. This is because the crisis affecting the market becomes heightened with other markets (e.g., equities and currencies) that could be available to investors for diversification, which have also been impacted adversely by the pandemic(see Gil-Alana and Claudio-Quiroga 2020 ; Salisu et al 2020a , b ; Sharma 2020 ; Iyke 2020b ; Narayan 2020b , c ; Narayan et al 2020 ).…”

Section: Introductionmentioning

confidence: 99%

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Salisu

Obiora²

2021

Financ Innov

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This study examines the hedging effectiveness of financial innovations against crude oil investment risks, both before and during the COVID-19 pandemic. We focus on the non-energy exchange traded funds (ETFs) as proxies for financial innovations given the potential positive correlation between energy variants and crude oil proxies. We employ a multivariate volatility modeling framework that accounts for important statistical features of the non-energy ETFs and oil price series in the computation of optimal weights and optimal hedging ratios. Results show evidence of hedging effectiveness for the financial innovations against oil market risks, with higher hedging performance observed during the pandemic. Overall, we show that sectoral financial innovations provide resilient investment options. Therefore, we propose that including the ETFs in an investment portfolio containing oil could improve risk-adjusted returns, especially in similar financial crisis as witnessed during the pandemic. In essence, our results are useful for investors in the global oil market seeking to maximize risk-adjusted returns when making investment decisions. Moreover, by exploring the role of structural breaks in the multivariate volatility framework, our attempts at establishing robustness for the results reveal that ignoring the same may lead to wrong conclusions about the hedging effectiveness.

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“…Wu et al (2011) pointed out that the volatility spillovers between different markets provide insights into price volatility and its connection. In particular, the fact that volatility is transmitted within and across commodity markets is often viewed as evidence of financialization and integration (see Bekaert et al, 2005; Gozgor et al, 2016; Jin et al, 2012; Nicola et al, 2016; Okorie & Lin, 2020). By determining the direction and scale of volatility spillovers, we can learn more about the information efficiency of the metal market, which is closely related to price discovery (see Figuerola‐Ferretti & Gilbert, 2005; Figuerola‐Ferretti & Gonzalo, 2010; Kumar & Arora, 2018; Li et al, 2021).…”

Section: Introductionmentioning

confidence: 99%

Analyzing the frequency dynamics of volatility spillovers across precious and industrial metal markets

Liu

Gong

Lin

2021

Journal of Futures Markets

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This paper investigates the volatility spillovers across precious and industrial metal markets over the period 1993–2019 based on the DY and BK methods. Results are summarized as follows: (1) while volatility spillovers across industrial metals are higher than across precious metals, the opposite occurs during crisis periods where precious metals cause net volatility spillovers to industrial metals; (2) volatility spillovers of the two metal groups show different dynamics in the short‐, medium‐ and long‐term components, especially in the short‐ and medium‐term components.

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Crude oil price and cryptocurrencies: Evidence of volatility connectedness and hedging strategy

Cited by 175 publications

References 34 publications

Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

COVID-19 pandemic and the crude oil market risk: hedging options with non-energy financial innovations

Analyzing the frequency dynamics of volatility spillovers across precious and industrial metal markets

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