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

Abstract

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.

Cryptocurrency as a safe haven for investment portfolios amid COVID-19 panic cases of Bitcoin, Ethereum and Litecoin

“…So in the light of these issues, this study models the reactions of major cryptocurrencies' returns in relation to panic and hysteria incited by This study adds to existing knowledge on three folds. First, it complements findings of recent studies on cryptocurrencies and COVID-19 (Demir et al, 2020;Vidal-Tom as, 2021;Yousaf et al, 2021;Shahzad et al, 2021;Naeem et al, 2021). The focus of recent studies has been directed towards the effect of the prevailing pandemic on stocks (Ozkan, 2021;Curto and Serrasqueiro, 2021;Nguyen et al, 2021;Chen et al, 2021;Mezhgan et al, 2021).…”

“…Bitcoin, Ethereum, ADA, CRO were able to register positive gains in periods of small and large shocks unlike other cryptocurrencies. On a comparative study, Yousaf et al (2021) employed dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC-GARCH) to examine hedging effectiveness for oil, Bitcoin and gold during COVID-19. Their findings urged investors to increase proportion of Bitcoin in portfolios that include these three assets as it is more stable.…”

“…The review of recent literature on the impact of COVID-19 pandemic on the volatility of cryptocurrencies' prices reveals disparities among the findings from different studies. The first group of studies such as Mnif et al (2020), Corbet et al (2021), Iqbal et al (2021) and Yousaf et al (2021) show that cryptocurrencies have generally been stable and exhibited some positive returns during COVID-19 thus been considered a safe haven. This has also been supported by Vidal-Tom as (2021) who showed recovery and stability of cryptocurrencies since the first wave of COVID-19 which peaked in March 2020.…”

Return and Volatility Spillover between Cryptocurrency and Stock Markets: Evidence from Turkey

“…Also, there are no autoregressive effects on the current returns of any cryptocurrency. This result, Yousaf et al (2021) support their findings. In all models, the return spillovers ( ) between BIST100 and cryptocurrencies are not statistically significant.…”

Is green investment different from grey? Return and volatility spillovers between green and grey energy ETFs

“…To summarize above, given the most important consideration of this paper is to evaluate cross market spillovers running two and from energy markets (Green and Grey) which can only be estimated through off-diagonal coefficients of ARCH and GARCH matrices, we do not have any other choice but to follow the lead of leading researchers by employing full BEKK. (Allen et al, 2017;Chang et al, 2019a;Gulzar et al, 2019;Huang et al, 2010;Li, 2015;Rizvi & Itani, 2021;Sadorsky, 2012a;Sarwar et al, 2019Sarwar et al, , 2020Wang et al, 2019;Yousaf et al, 2021).…”