Article

Does Gold or Bitcoin Hedge Economic Policy Uncertainty?

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  • Applied College Taibah University
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Abstract

Calculating the hedge and safe-haven properties of gold and Bitcoin via GARCH model and quantile regression with dummy variables. We find that: (1) Neither gold nor Bitcoin can serve as a strong hedge or safe-haven for economic policy uncertainty (EPU) at the average condition. (2) Bitcoin is more responsive to EPU shocks, while gold maintains stability with smaller hedge and safe-haven coefficients. (3) In most cases, both gold and Bitcoin can act as the weak hedge and weak safe-haven against EPU during the extreme bearish and bullish markets, which two can be considered for portfolio diversification during the normal market.

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... Economic Policy Uncertainty (EPU) and geopolitical risks (GPR) are among the main illustrations of macroeconomic uncertainty which have several effects, not only on exchange rates (Balcilar et al., 2017;Chiang, 2022;Salisu et al., 2022), oil and stock market returns and volatilities (Balcilar et al., 2017;Kyriazis, 2020;Smales, 2021;Wu et al., 2019), natural resources rents (Dogan et al., 2021), bank credit growth (Demir and Danisman, 2021), but also on some features of Bitcoin market (Demir et al., 2018;Fang et al., 2019;Panagiotidis et al., 2019). Moreover, literature on crypto market predictors highlights the importance of Economic Policy Uncertainty (EPU) and geopolitical risks (GPR) in predicting Bitcoin's dynamics and price formation (Colon et al., 2021;Shaikh, 2020;Su et al., 2020;Yen and Cheng, 2021). ...
... Thus, we split our analysis into two sub-periods respectively prior to-and following June 2014. Besides, to be in line with previous literature, we focus on the role of US uncertainty in Bitcoin market (Al Mamun et al., 2020;Mokni et al., 2021;Su et al., 2020;Wu et al., 2019). Equally, literature has underlined the importance of China's policies uncertainties in Bitcoin's market (Shaikh, 2020;Wu et al., 2021;Yen and Cheng, 2021). ...
... We focus on both EPU and GPR to capture uncertainty. EPU is the Baker et al. (2016) index broadly used by previous studies (Demir et al., 2018;Fang et al., 2019;Mokni, 2021;Panagiotidis et al., 2019;Shaikh, 2020;Wang et al., 2020;Wu et al., 2019). GPR is the index proposed by (Caldara and Iacoviello, 2018) and used as a proxy of geopolitical uncertainty by several empirical researches (Al Mamun et al., 2020;Aysan et al., 2019;Bouri et al., 2020;Kyriazis, 2021Kyriazis, , 2020Salisu et al., 2022;Su et al., 2020). ...
Article
We investigate how economic policy uncertainty (EPU) and geopolitical risks (GPR) impact Bitcoin volatility with respect to factors related to type and nationality of uncertainty, investigated period, relationship horizon and extreme conditions. Applying ARDL model and quantile regression for monthly data from August 2010 to September 2021, we reveal that June 2014 corresponds to a key date that marks a reversal in the investigated relationship. Furthermore, we show that the relationship between uncertainty and bitcoin volatility changes according to different factors. US uncertainty has short run effects on Bitcoin volatility, while China’s uncertainty has rather long run effects. Moreover, Bitcoin volatility responds in the same manner to US EPU and GPR, while, it responds differently to China's EPU and GPR. In extreme quantiles, we find that Bitcoin hedges against US EPU and GPR. Further, Bitcoin hedges against either individual or joint effects of US uncertainty, but not both.
... Following Baur and Lucey (2010); Bouri et al. (2017); and Wu et al. (2019), we employ a GARCH model and a quantile regression model with dummy variables for examining the hedge and safe haven properties of carbon futures and clean energy stocks against the U.S. CPU. Baur and Lucey (2010) have assumed the various return conditions on average, however, in reality, returns perform differently in bullish and bearish market conditions (Mokni et al. 2021(Mokni et al. , 2022Wu et al. 2019). ...
... Following Baur and Lucey (2010); Bouri et al. (2017); and Wu et al. (2019), we employ a GARCH model and a quantile regression model with dummy variables for examining the hedge and safe haven properties of carbon futures and clean energy stocks against the U.S. CPU. Baur and Lucey (2010) have assumed the various return conditions on average, however, in reality, returns perform differently in bullish and bearish market conditions (Mokni et al. 2021(Mokni et al. , 2022Wu et al. 2019). Moreover, asset responses to uncertainties depend on market conditions. ...
... In accordance with the research of Iqbal (2017) and Wu et al. (2019), we consider when the U.S. CPU increases the prices of carbon futures and clean energy stocks adjust in the same direction. In other words, the positive correlation of carbon futures and clean energy stocks with the U.S. CPU will represent the ability of an asset to act as a hedge and safe haven against uncertainty. ...
Article
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Using the GARCH model and quantile regression with dummy variables, we investigate the hedging and safe haven properties of carbon futures and clean energy stocks against the U.S. climate policy uncertainty (CPU). We discover that carbon futures and clean energy stocks have a weak hedge and a semi-strong safe haven in different market conditions. Carbon futures exhibit a strong safe haven in both bull and bear markets, depending on the degree of uncertainty. Clean energy stocks, on the other hand, possess a weak hedge across market conditions and a strong safe haven in bull markets. Sub-sample analyses of prior-and post-Paris Agreement of 2016 also exhibit consistent results for safe haven properties of carbon futures and clean energy stocks.
... However, most previous research has focused on Bitcoin's return and volatility, as well as its hedge and haven features for other asset classes, with contradicting results (Hasan et al., 2021c). Limited studies have recently attempted to link Bitcoin to economic and political uncertainty, arguing that Bitcoin could serve as a strong hedge against such uncertainties (e.g., Bouri et al., 2017;Demir et al., 2018;Wu et al., 2019). Conversely, some studies (e.g., Wang et al., 2020;Wu et al., 2019) suggest that Bitcoin is unable to hedge uncertainty and react differently to several shocks, particularly EPU shocks, suggesting that no consensus has yet been made on this issue in the face of varieties of uncertainties. ...
... Limited studies have recently attempted to link Bitcoin to economic and political uncertainty, arguing that Bitcoin could serve as a strong hedge against such uncertainties (e.g., Bouri et al., 2017;Demir et al., 2018;Wu et al., 2019). Conversely, some studies (e.g., Wang et al., 2020;Wu et al., 2019) suggest that Bitcoin is unable to hedge uncertainty and react differently to several shocks, particularly EPU shocks, suggesting that no consensus has yet been made on this issue in the face of varieties of uncertainties. ...
... He also points out that precious metals can hedge EPU shocks but not VIX, implying that gold reacts to diverse uncertainties differently. In contrast, Wu et al. (2019) find that gold can be employed as a weak safe-haven asset against EPU in bearish and bullish events. Recently, Zhang et al. (2021) have investigated the relation between EPU and gold return dynamics, finding that the impact of EPU-induced shocks This preprint research paper has not been peer reviewed. ...
Article
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We evaluate the influence of five major uncertainty factors on four asset classes. Our time-varying findings suggest that each asset hedges only a particular uncertainty factor, whereas gold does more than one factor, especially during COVID-19. Our quantile regression results show that gold and Islamic stock can better hedge various uncertainty factors than Bitcoin and crude oil, depending on the market conditions. Our overall findings suggest that gold and Islamic stock appear more resilient against studied uncertainties than Bitcoin and crude oil. Our findings have crucial risk and portfolio management implications for investors, portfolio managers, and policymakers.
... In recent years, cryptocurrencies such as Bitcoin have taken a more significant position as an investment asset in the financial markets (Klein, Hien Pham, & Walther, 2018;Baur, Dimpfl, & Kuck, 2018;Long, Pei, Tian, & Lang, 2021). Obviously, Bitcoin has more financial risks, and there is also more consideration about the geopolitical risk and the impact to macroeconomic of Bitcoin (Wu, Tong, Yang, & Derbali, 2019). However, gold is a traditional investment asset with a more stable rate of return, which was a symbol of wealth from Middle Ages (Baur, Dimpfl, & Kuck, 2018), and kept playing an important role in financial markets until now (Ye, Sun, & Miao, 2020). ...
... Many researchers have studied the economic-inner relationship between Bitcoin and gold such as the conditional variance properties, hedging capabilities, etc. (Baur, Dimpfl, & Kuck, 2018;Long, Pei, Tian, & Lang, 2021;Wu, Tong, Yang, & Derbali, 2019;Ye, Sun, & Miao, 2020;Chkili, Ben Rejeb, & Arfaoui, 2021;Guesmi, Saadi, Abid, & Ftiti, 2019), and some of the researchers found that hedging strategies involving Bitcoin will reduce the portfolio's risk, as compared to the risk of the portfolio without Bitcoin (gold, oil, etc.) (Wu, Tong, Yang, & Derbali, 2019;Guesmi, Saadi, Abid, & Ftiti, 2019). This discovery gives us the confidence to find the best trading strategy of the portfolio made by Bitcoin and gold. ...
... Many researchers have studied the economic-inner relationship between Bitcoin and gold such as the conditional variance properties, hedging capabilities, etc. (Baur, Dimpfl, & Kuck, 2018;Long, Pei, Tian, & Lang, 2021;Wu, Tong, Yang, & Derbali, 2019;Ye, Sun, & Miao, 2020;Chkili, Ben Rejeb, & Arfaoui, 2021;Guesmi, Saadi, Abid, & Ftiti, 2019), and some of the researchers found that hedging strategies involving Bitcoin will reduce the portfolio's risk, as compared to the risk of the portfolio without Bitcoin (gold, oil, etc.) (Wu, Tong, Yang, & Derbali, 2019;Guesmi, Saadi, Abid, & Ftiti, 2019). This discovery gives us the confidence to find the best trading strategy of the portfolio made by Bitcoin and gold. ...
Article
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Venture capital led by Bitcoin and gold has become increasingly popular in the past several years, so the research of cryptocurrencies (such as Bitcoin) becomes deeper and deeper. Many researchers have studied the collaborative investment of bitcoin and gold, which is an expective portfolio. In this paper, the authors constructed a systematic model, achieving the combination among prediction, making strategies, solving profits, and evaluation. All the study in this paper is based on the given data and constructed model with accurate references.In this paper, the authors selected the long short-term memory model (LSTM) as the basis, then designed two models called the gold price prediction model (GPPM) and the Bitcoin price prediction model (BPPM) to estimate the price of both gold and Bitcoin, standing as a trader, not a “god economist”. The error analysis shows a good performance of GPPM and BPPM, and it gives the authors confidence to make strategies and calculate final profits (investment worth).Unambiguously, the final goal of this question is to maximize the total assets (profits), so the author set up a single objective optimization model (SOOM) called the trading strategy model (TSM). The total constraint conditions are divided into six directions, including the basic trading conditions, the evaluation of financial risk, and the difference between gold and Bitcoin. Additionally, the costumers with different trading risk tolerance will acquire different assets finally, which indicates that the prudent policy generally can lead to a better result. After calculation, the asset on 2021/9/10 is about 1.59×108 USD, a considerable number.The evaluation of TSM has two parts, one is the disturbance test. This test randomly sets that several days’ trading does not occur, then has a comparison between the original model prices and the prices after disturbance. The result proves that the strategy predicted by TSM is the best strategy. The result of the sensitivity test in section 4 finds the polynomial relationship between the assets and the transaction costs. Under current conditions, the final assets will decrease by 4.2% if the transaction costs of gold increase by 1%, and will increase by 2.1% if the transaction costs of bitcoin increase by 1%.Finally, the authors wrote a memorandum for different customers & traders. We sincerely hope the memorandum can help them in the near future.
... Higher uncertainty leads to an increase in the gold price. However, Wu et al. [37] used GARCH and quantile regression models to evaluate the hedge and safe haven characteristics of gold prices and bitcoin in the face of EPU. The study reveals that the gold price does not serve as a strong hedge or safe haven for the EPU. ...
... Similarly, based on the empirical model of [1,24,36,37,[56][57][58][59] the following model is specified to examine the impact of EPU on gold price: ...
... This also increases the level of Indian economic policy uncertainty. This conforms to the findings of Demir et al. [58] and Wu et al. [37], which associate high gold prices with rising EPU and argue that gold can serve as a safe haven during severe economic crises and as a hedge for portfolio diversification during calm periods. Estimates also show that the EPU spillover from the US and Europe to India is positive and statistically significant at the 10% level, while a small but insignificant EPU spillover from China is indicated. ...
Article
Full-text available
This study examines the dynamic interaction between oil, natural gas, and prices with Indian economic policy uncertainty (EPU). The study finds that gold prices and industrial production are fundamental drivers of Indian economic policy uncertainty in both the short and long runs, using a dynamic autoregressive distributed lag (ARDL) model with monthly data ranging from January 2003 to July 2020. Gold prices are positively related to the Indian EPU, while industrial production is negatively related to it. Thus, investors in the Indian economy should use gold as a hedge for portfolio diversification and as a safe haven during an economic crisis. We also find a significant positive interconnection between gold prices and crude oil prices in both the short run and the long run, while the significant positive impact of natural gas prices on crude oil prices manifests only in the long run. The evidence also indicates that the EPUs of the US and Europe positively affect the Indian EPU, while the EPU of China does not have a significant effect. Higher crude oil prices are associated with higher gas prices, whereas higher gold prices are negatively associated with the natural gas price and vice versa. Furthermore, the evidence shows that the Indian EPU does not have a significant effect on the changes in the prices of goods.
... Bitcoin return is negatively related to the EPU index, but this effect turns positive in times of high uncertainty, and Bitcoin could be used as a storehold of wealth. Wu et al. (2019) achieve significant results in terms of EPU on evaluating gold and Bitcoin prices together. Both investment instruments will not function as a strong and safe protection for the EPU, Bitcoin is more sensitive to shocks in the EPU, and both can be considered for portfolio diversification in the markets. ...
... As a consequence of the raise in the block size, the propagation speed slows down, which causes divarication in the blockchain. (Wu et al., 2019) Interoperability and standardization: Acting on the basis of an end-to-end approach from the beginning to the end of the process, verification of all participants and a certain standardization are needed. Interoperability with Web 3.0, which is more mentioned in the literature, cannot be easily achieved in this sense. ...
Chapter
The aim of the study is to observe and model the effects of some variables that have a global effect on the Bitcoin price. Bitcoin price is the dependent variable. Gold price, oil price, Volatility Index (VIX), and global economic and political uncertainty index (GEPU) are independent variables. The analyzes are carried out with the Multivariate Adaptive Regression Splines (MARS) approach, using monthly data for the period April 2011 – February 2022.
... Bitcoin return is negatively related to the EPU index, but this effect turns positive in times of high uncertainty, and Bitcoin could be used as a storehold of wealth. Wu et al. (2019) achieve significant results in terms of EPU on evaluating gold and Bitcoin prices together. Both investment instruments will not function as a strong and safe protection for the EPU, Bitcoin is more sensitive to shocks in the EPU, and both can be considered for portfolio diversification in the markets. ...
... As a consequence of the raise in the block size, the propagation speed slows down, which causes divarication in the blockchain. (Wu et al., 2019) Interoperability and standardization: Acting on the basis of an end-to-end approach from the beginning to the end of the process, verification of all participants and a certain standardization are needed. Interoperability with Web 3.0, which is more mentioned in the literature, cannot be easily achieved in this sense. ...
... In a period of increased turbulence, as reflected indicatively on the impact of China's geopolitical risks on gold and oil (Li et al., 2021), a new question persists. Are traditional assets, like gold and commodities, still better safe haven investments than alternative assets, like for example Bitcoin (Shahzad et al., 2019a) Within this context, and provided that the answer is still hovering, at least in terms of considering Bitcoin along with gold, and commodities, as safe havens for various stock indices (Wu et al., 2019;Ji et al., 2019;Bouri et al. 2020), it is important to review and investigate the determinants of traditional asset classes. Furthermore, it is crucial to measure and monitor the spillover effects across markets and asset classes in a time-varying fashion. ...
... The advent of blockchain and cryptocurrencies in the last decade has secured a place for the latter (especially Bitcoin) to be considered as safe haven assets in periods of economic turbulence and crises. Many studies, by applying various econometric and statistical techniques aim to shed light to the role that cryptocurrencies play as safe haven assets when compared with gold and commodities (Shahzad et al., 2019a;Shahzad et al., 2019b;Wu et al., 2019;Bouri et al., 2020;Ji et al., 2020). Bouri et al. (2020) by using wavelet analysis find that Bitcoin is the strongest safe haven asset followed by gold, and commodities. ...
Article
This paper focuses on the price determinants of gold, and on the challenges associated with gold’s safe haven property. Specifically, it analyses the interlinkages and the return spillover effect among gold, crude oil, S&P 500, dollar exchange rate, Consumer Price Index (CPI), economic policy uncertainty and Treasury bills, by employing a Vector Autoregression (VAR) and the spillover index of Diebold and Yilmaz (2012, 2014). Monthly realized return series, covering the period from 2nd of January 1986 to 31st of December 2019 are used to examine the short-run linkages, and the return spillovers rolling-window estimates in analyzing the transmission mechanism in a time-varying fashion, respectively. Our findings identify gold as a strong dollar hedge, while crude oil and Treasury bills appear to drive inflation; they also indicate strong spillover effects between exchange rate and gold returns. In general, co-movement dynamics display state-dependent characteristics. Both total and directional spillovers increase significantly during market turbulence caused by severe financial crises such as the Global Financial Crisis (GFC) of 2007-2009 and the European Sovereign Debt Crisis of 2010-2012. Net spillovers switch between positive and negative values for all these markets, implying that the recipient/transmitter position changes drastically with market events. Economic policy uncertainty, stock market returns, and crude oil price returns are the main transmitters, while Treasury bills and CPI are the main return shock recipients. Gold and exchange rate act both as receivers and transmitters over the sample period.
... The most well-known crypto currency is Bitcoin. Numerous studies have begun to examine the relationship of Bitcoin with different investment instruments (Luther and Salter, 2017;Wu et al., 2019;Çoban et al., 2021). ...
... This paper analyzed the effect of thermal radiation as well as viscous dissipation in the Casson fluid flow over the exponential porous stretching surface. Khalid et al.[24] investigated the numerical solution of different types of nano fluid and compared the isothermal solution graphically. Cortell[25] discussed the numerical solution of ambient fluid and its effect on the thermal radiation.Sharma et al.[26] investigated the soret and duffor effect, concluded the numerical solution for incompressible fluid in a vertical cone.Bestman[27] presented the activation energy by considering porous medium as a suitable platform to analyses the flow of convective boundary layer. ...
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EFFECT OF SOLAR THERMAL RADIATION AND MAGNETIC FIELD ON THE FLOW OF CASSON FLUID Abstract In this paper, the behavior of the non-Newtonian fluid and heat transfer is considered in an exponentially stretching surface in the occurrence of porous magnetic field, as it has vast applications in the field of several industries. An explicit Finite difference method is applied for the solution of governing equations. By considering governing equations of the mathematical model as a platform non-linier differential equation have been reduced to ordinary differential equations by using similarity transformations. BVP4C software technique is used for finding the solutions and results are presented in the form of tables and graphs for several equations. After simulation, it is found that the heat transfer rate decreases with higher values of the magnetic field as well as the radiation. The temperature profile and velocity profile of the Casson fluid flow is directly related to several parameters. Finally, it is observed that several parameters such as Casson fluid parameter, radiation parameter, Prandtl number, and Eckert number are stable at the point of convergence.
... The stable economic policy helps shape economic prospects and guides sustainable thriving, whereas economic uncertainty slows development. Under global uncertainty, researchers, including Baur (2013) and Wu et al. (2019), gauge the behavioral aspects of financial assets for hedging in uncertainty and risk mitigation. Financial assets, such as gold and Bitcoin, can act as a safe haven during a financial crisis with unique attributes. ...
... Furthermore, Wu et al. (2019) evaluate the "safe-haven" properties of Bitcoin and gold for global economic policy uncertainty by applying the GARCH model and quantile regression. The study reveals that Bitcoin is more responsive to EPU shock, whereas gold exhibits stability by showing a marginal hedge and safe-haven coefficient. ...
Article
Full-text available
The aim of this study is to gauge the impact of global economic policy uncertainty and natural resource prices, that is, oil prices and gold prices, on Bitcoin returns by using monthly data spanning from May 2013 to December 2021. The study applies ARDL and nonlinear ARDL for evaluating the symmetric and asymmetric effects of Global Economic Uncertainty (GU), oil price (O), and natural gas price on Bitcoin volatility investigated by using the ARCH-GARCH-ERAGCH and non-granger causality test. ARDL model estimation establishes a long-run cointegration between GU, O, G, and Bitcoin. Moreover, GU and oil price exhibits a negative association with Bitcoin and positive influences running from gold price shock to Bitcoin in the long run. NARDL results ascertain the long-run asymmetric relations between GU, oil price, gold price (G), and Bitcoin return. Furthermore, GU's asymmetric effect and positive shock in gold price negatively linked to Bitcoin return in the long run, whereas asymmetric shock in oil price and negative shocks in gold price established a positive linkage with Bitcoin. The results of ARCH effects disclose the volatility persistence in the variables. The causality test reveals that the feedback hypothesis explains the causal effects between GU and Bitcoin and unidirectional causality running from Bitcoin to gold price and oil price to Bitcoin.
... These findings were nuanced by Wu et al. (2019), who showed that neither gold nor Bitcoin can serve as a powerful hedge or safe haven for EPU. Actually, Bitcoin is more prone Asymmetric effects of economic policy to EPU shocks, and in the case of extreme bearish and bullish markets, both gold and Bitcoin appear to be poor hedges and against EPU. ...
... This finding suggests that investors can consider Bitcoin in the portfolio only for short-term investments during bad times. On the other hand, Bitcoin seems to be a good hedging instrument during the low EPU which is partly in line with of Fang et al. (2019) and Wu et al., 2019. These findings provide potential implications for portfolio diversification and risk management. ...
Article
Purpose – Even though Bitcoin has been often labelled as a safe haven asset class in the literature, the influence of economic policy uncertainty (EPU) on the diversifying opportunities offered by Bitcoin in relation to other assets needs to be investigated. This paper aims to investigate how the EPU affects diversification of commodity, conventional, Islamic and sustainable equity returns in relation to its impact on Bitcoin returns. Design/methodology/approach – The authors use advanced time-series econometrics, namely, multivariate generalized autoregressive conditional heteroscedastic-dynamic conditional correlation and continuousness wavelet transformation, for the analysis of the daily returns for the aforementioned assets between 01 August 2011 and 01 September 2019. Findings – First, the authors found a strong evidence of Bitcoin’s mean reverting trend in the long run while its volatility has decreased significantly since 2013. After separating the EPU into two regimes (high and low), diversification opportunities with Bitcoin seems to disappear in a high EPU period, while the hedging opportunity tends to prevail in a low EPU period for all classes of assets. Importantly, the findings indicate that Bitcoin offers short-term diversification for sustainable and Islamic equity as well as energy stocks during a low uncertainty period. Consequently, in relation to the policy uncertainty, Bitcoin provides similar hedging opportunities than commodities like Gold and Silver. Overall, the study shows that EPU is remarkably important in explaining the average portfolio returns of Bitcoin, suggesting that this indicator can be perceived as a decent explanatory factor for portfolio diversification. Originality/value – The study significantly extends the empirical literature of Bitcoin’s portfolio diversification by taking EPU into consideration. To the best of authors’ knowledge, this is one of the few studies to investigate the asymmetric effects of US EPU on Bitcoin’s hedging capabilities by taking into account major conventional equity, sustainable equity, Islamic equity, gold, silver and oil.
... Gozgor et al. (2019b) obtained similar evidence on the significant hedging capacities of Bitcoin against the uncertainty shocks using another uncertainty measure: The United States trade policy uncertainty index Fang et al. (2019). observe that the global EPU index promotes the hedging capacity of portfolios against Bitcoin price volatility Wu et al. (2019). also find that Bitcoin reacts more responsive to the EPU shocks than Gold. ...
... Therefore, Gold is highly sensitive to uncertainty shocks, and it is significantly affected by cryptocurrency markets. Thus, while existing evidence suggests that Gold can be used for hedging purposes against uncertainty shocks (e.g., Hassan et al., 2021;Gozgor et al., 2019a;Wu et al., 2019), our analysis uncovered that gold is susceptible to return and volatility spillovers from cryptocurrency uncertainty measures. Therefore, investors and traders should seek alternative assets rather than gold to hedge the uncertainty shocks from cryptocurrencies. ...
Article
This paper examines the dynamic connectedness of return- and volatility spillovers among cryptocurrency index (CRIX), Gold, and uncertainty measures. Apart from traditional uncertainty measures, we also consider two novel uncertainty measures: Cryptocurrency Policy Uncertainty and Cryptocurrency Price Uncertainty indices. We observe that cryptocurrency policy uncertainty is the main transmitter of the return spillovers to other variables. In addition, Gold is a net receiver of both the return and the volatility spillovers. These results are valid under bearish, bullish, and normal market conditions. Our findings contribute to the literature considering the spillover effect between cryptocurrencies and other assets and their determinants.
... Furthermore, Fang, Bouri, Gupta, and Roubaud (2019) extend the results of Demir et al. (2018) and find that the global EPU measure is a driving factor of the returns and the price volatility of Bitcoin. Wu, Tong, Yang, and Derbali (2019) demonstrate that Bitcoin has more hedging capacity than Gold during times of economic policy uncertainty shocks. Gozgor, Tiwari, Demir, and Akron (2019) observe the significant hedging feature of Bitcoin against trade policy uncertainty shocks in the United States. ...
... This evidence implies decreasing diversification benefits, On the other hand, Gold is the centre of the system regarding the return spillover and demonstrates the "safe heaven" properties against uncertainty shocks. This evidence aligns with previous findings on the pre-COVID-19 period (e.g., Wu et al., 2019) and the COVID-19 era (see, e.g., Ji et al., 2020). It is an interesting issue to emphasise the competitive role of Bitcoin for Gold investors. ...
... During the recent decade, widespread research has discussed the importance of cryptocurrencies as a safe-haven asset and having an important hedging role amid uncertainties, particularly during the recent pandemic (Akhtaruzzaman, Boubaker, & Sensoy, 2021;Bariviera & Merediz-Solà, 2021;Bouri, Gupta, Tiwari, & Roubaud, 2017;Conlon, Corbet, & McGee, 2020;Corbet, Lucey, Urquhart, & Yarovaya, 2019;Guesmi, Saadi, Abid, & Ftiti, 2019;Urquhart & Zhang, 2019;Wu, Tong, Yang, & Derbali, 2019). Alternatively, some studies have found a higher incidence of the volatility of cryptocurrencies in comparison to conventional assets (Corbet, Larkin, Lucey, & Yarovaya, 2020;Dwyer, 2015). ...
Article
We provide the first empirical study on the role of panic and stress related to the COVID-19 pandemic, including six uncertainties and the four most traded cryptocurrencies, on three green bond market volatilities. Based on daily data covering the period from January 1, 2020 to January 31, 2022, we combine Diebold and Yilmaz's (2012, 2014) time domain spillover approach and Ando et al.'s (2022) quantile regression framework to investigate the time-frequency spillover connectedness among markets and measure the direction and intensity of the net transmission effect under extreme negative and positive event conditions, and normal states. We further provide novel insights into the green finance literature by examining sensitivity to quantile analysis of the net transfer mechanism between green bonds, cryptocurrencies, and pandemic uncertainty. Regarding the network connectedness analysis, the results reveal strong net information spillover transmission among markets under the bearish market. In extremely negative event circumstances, the MSCI Euro green bond acts as the leading net shock receiver in the system, whereas COVID-19 fake news appears as the largest net shock contributor, followed by BTC. According to sensitivity to quantile analysis, the net dynamic shock transfer mechanism is time-varying and quantile-dependent. Overall, our work uncovers crucial implications for investors and policymakers.
... While the results of some studies highlight the dangers of investing in crypto assets due to their high price volatility (Chkili, 2021;Ghorbel and Jeribi, 2021;Szetela et al., 2021;Demir et al., 2020;Omane-Adjepong et al., 2019), other studies have shown that Bitcoin and some cryptocurrencies can be effective diversifiers in portfolios for hedging due to their weak correlation with stocks (Shahzad et al., 2020;Kliberet al., 2019;Mokni et al., 2020;Bouri et al., 2017;Stensås et al., 2019). Current studies also indicate that, similar to commodities, Bitcoin can be a safe haven and a good diversifier against shocks in the face of economic and geopolitical uncertainties (Selmi et al., 2018;Wang et al., 2019;Wu et al., 2019;Urquhart and Zhang, 2019;Al-Yahyaee et al., 2019;Gronwald, 2019;Shahzad et al., 2020;Su et al., 2020; although there are studies contradictory to this determination (Klein et al., 2018;Al Mamun et al., 2020;Das et al., 2020). ...
Article
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Many investors include cryptocurrencies as potential investment tools in their portfolios. Previous studies have mostly analyzed Bitcoin regarding its hedge and safe haven features. Although the cryptocurrency market has expanded far beyond Bitcoin, few studies have examined the interaction among all other cryptocurrencies and conventional financial assets. For this purpose, as the dependent variable, we included the cryptocurrency index to represent the cryptocurrency market, whereas international stocks, bonds, United States (US) dollars, gold, and commodities as independent variables in the analysis. The interactions among the variables were analyzed using the Granger causality tests. The analysis results revealed a two-way causality relationship between the cryptocurrency market and the bond markets, indicating that the cryptocurrency index can be used to predict bond prices and vice versa.
... As a strategic and essential resource, precious metals are a significant contributor to the national economies and developmental progress and are positively associated with core industries and a nation's GDP (Kang et al., 2017a;Wu et al., 2019). Precious metals help maintain the global economy and stability in international financial markets as these are crucial financial commodities. ...
Article
Precious metals and traditional energy prices are shaken by geopolitical tension, financial instability, rising inflation, declining economic growth, and financial markets. In addition, conventional energy, such as oil and gas, are intensive inputs to metal production, making these variables increasingly interconnected for economies and financial investment. This study analyzes the dynamics of the connectedness generated by economic instability and geopolitical risk on the traditional non-renewable energy and precious metals markets using Time-Varying Parameter Vector Autoregressive (TVP-VAR) and Wavelets Coherences from 11 June 2012 to 23 May 2022. The results show that the total connectedness index was higher during the Russia-Ukrainian conflict in February–May 2022. Moreover, the geopolitical risk, financial instability, and oil return are net transmitters of shocks, while gold, gas, and silver are the net received. The wavelet coherence results show strong co-movement during the Russia-Ukrainian conflict between geopolitical risk, oil, gas, and silver returns at various scales, given its properties for diversification at the time-frequency domain. Gold appears a stable asset and serves as a haven ability against geopolitical risk and financial instability. Findings indicate that geopolitical risk and financial instability are crucial in determining metals, precious, and energy markets that the investors, managers, funds, and producers need to consider in their investment and production decisions. Policymakers and macroprudential authorities should consider a shifting macroeconomic environment.
... Other studies argued that cryptocurrencies are also influenced by changes in EPU (Yen and Cheng, 2020;Demir, Gozgor, Lau, and Vigne, 2018;Paule-Vianez, Prado-Román, and Gómez-Martínez, 2020;Mokni, 2021;Elsayed et al., 2022). Further studies suggest that cryptocurrencies are not only used as means of exchange but also act as investment tools and safe havens to protect against economic uncertainty (Wu et al., 2019(Wu et al., , 2021Paule-Vianez et al., 2020;Hasan et al., 2021;Colon et al., 2021;Mokni et al., 2022). ...
Article
The paper examines the dynamic spillover among traditional currencies and cryptocurrencies before and during the COVID-19 pandemic and investigates whether economic policy uncertainty (EPU) impacts this spillover. Based on the TVP-VAR approach, we find evidence of spillover effects among currencies, which increased widely during the pandemic. In addition, results suggest that almost all cryptocurrencies remain as “safe-haven” tools against market uncertainty during the COVID-19 period. Moreover, comparative analysis shows that the total connectedness for cryptocurrencies is lower than for traditional currencies during the crisis. Further analysis using quantile regression suggests that EPU exerts an impact on the total and the net spillovers with different degrees across currencies and this impact is affected by the health crisis. Our findings have important policy implications for policymakers, investors, and international traders.
... Fang et al. (2019) show evidence that economic policy uncertainty has a positive effect on Bitcoin bond, stock, and commodity correlations. Wu et al. (2019) search for the safe-haven properties of gold and Bitcoin against economic policy uncertainty and find that Bitcoin is more sensitive to EPU shocks than gold and that both investment instruments show weak safe-haven properties in extreme bullish and bearish markets. compare the predictive power of newspaper-and internet search-based measures of uncertainty for Bitcoin returns and indicate that the predictive ability of the internet-based measure is stronger. ...
Article
This paper examines the Granger causality from Twitter-based economic uncertainty (TEU) to three safe-haven assets – Bitcoin, gold, and US10 year Treasury notes. Using daily data (June 1, 2011–August 30, 2021) and causality-in-quantiles and wavelets methods, the results indicate variability in the causality between the mean and variance, as well as the market conditions. TEU Granger-causes the returns and volatility of Treasuries, the volatility but not returns of Bitcoin, and neither the volatility nor the returns of gold for the raw series, and the causality is mostly significant at low and middle quantiles for Bitcoin and Treasuries. We include other risk factors and confirm the variability in the causality. Considering the possibility of a hidden causality over various frequency domains due to investors' heterogeneous expectations and perceptions of risk, the wavelet transforms-based causality tests reveal an increase in the predictability of risk indicators under specific investment horizons and market conditions. During the pandemic, TEU strongly predicts future volatility of Treasury and Bitcoin returns, reflecting the importance of social-media posts for safe-haven pricing. These findings highlight the benefits of applying the causality-in-quantiles test to decomposed series to determine the contribution of each scale to the causality over various market conditions.
... Previous research documents controversial and inclusive findings on the co-movement of green/dirty cryptocurrencies and policy uncertainties. For instance, Wu et al. (2019) investigate the hedge and safe-haven properties of Bitcoin and gold against EPU using a combined GARCHbased quantile regression. They reveal that both gold and Bitcoin are not effective hedges nor safe-havens in average market conditions, however their weak hedging properties are more pronounced in highly uncertain times. ...
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Are conventional and sustainable cryptocurrencies effective hedging instruments for high cryptocurrency uncertainty? This paper investigates co-movements between conventional (Bitcoin, Ethereum, Binance Coin, Tether) and sustainable (Cardano, Powerledger, Stellar, Ripple) crypto-currencies and two cryptocurrency uncertainty indices (UCRY price and UCRY policy). Using weekly returns from October 1, 2017 to March 30, 2021, the paper employs the bivariate wavelet coherence method considering three investment horizons, short-term, medium-term, and long-term. Our findings confirm that conventional and sustainable cryptocurrencies show consistent positive and identical co-movements with both cryptocurrency uncertainty indices at the short-term horizon during COVID-19 and negative co-movement at the medium-term investment horizon, suggesting the short-term hedging ability of dirty/green cryptocurrencies for high UCRY price and policy. Evidence of negative coherences shows that higher cryptocurrency prices and policy uncertainties lead to lower cryptocurrency returns, reflecting the adverse impact of higher uncertainties on the trust of crypto traders and investors. Weak connectedness is found between dirty/green crypto-currencies and UCRY price/policy uncertainties, which suggests the possible use of dirty/green cryptocurrencies as a weak hedge for UCRY price and policy uncertainties. These findings provide potential avenues to hedge cryptocurrency uncertainties using conventional and sustainable cryp-tocurrencies across multiple investment horizons.
... These assets marked a significant contribution by their speculative nature and their substitutive character of conventional currencies (Mokni & Ajmi, 2021). In another vein, cryptocurrencies are alluring investment tools as they are often considered "safe haven" assets against other asset classes (e.g., Bouri, Gupta, Tiwari and Roubaud, 2017b;Mokni, Bouri, Ajmi and Vo, 2021b;Urquhart & Zhang, 2019, among others) or uncertainty (Mokni, 2021;Mokni, Al-Shboul, & Assaf, 2021a;Mokni, Youssef, & Ajmi, 2022;Wu, Tong, Yang, & Derbali, 2019). ...
Article
This paper examines the dynamic spillovers among the major cryptocurrencies under different market conditions and accounts for the ongoing COVID-19 health crisis. We also investigate whether cryptocurrency policy (CCPO) uncertainty and cryptocurrency price (CCPR) uncertainty affect the dynamic connectedness. We adopt the Quantile-VAR approach to capture the left and right tails of the distributions corresponding to return spillovers under different market conditions. Generally, cryptocurrencies show heterogeneous responses to the occurrence of the COVID-19 pandemic. We find that the total spillover index (TCI) varies across quantiles and rises widely during extreme market conditions, with a noticeable impact of the COVID-19 pandemic. Bitcoin lost its position as a dominant “hedger” during the health crisis, while Litecoin became the most dominant “hedger” and/or “safe-haven” asset before and during the pandemic period. Moreover, our analysis shows a significant impact of market uncertainties on total and net connectedness among the five cryptocurrencies. We argue that the COVID-19 pandemic crisis plays a vital role on the relationship between CCPO as well as CCPR and the dynamic connectedness across all market conditions.
... To stabilize the banking system against this negative shock and achieve the desired macroeconomic goals, central banks have implemented monetary policy, which has a direct effect on bank performance and risk. Economic policies, including monetary policy, play a critical role in defining an economy's economic development, and policy uncertainty can hinder the process (Wu et al., 2019). However, there is currently a challenge to using monetary policy to maintain financial stability (Derbali et al., 2020). ...
Article
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The impact of monetary policy on bank performance and risk is driven by bank individual characteristics and the COVID-19 pandemic, and the joint effect of bank individual factors and the coronavirus has been under-researched so far. To fill this void, this research applies the dynamic two-step system generalized method of moments (S-GMM) estimator to a sample of representative commercial banks on a quarterly basis for a small open emerging market such as Vietnam. We find that monetary policy expansion stimulates both banks’ performance and risk in a COVID-19 pandemic. Interestingly, the effectiveness of monetary policy expansion on banks’ operating outcomes is dependent on the interaction between the heterogeneity of the bank’s balance sheet items and the COVID-19 outbreak. More specifically, the performance-decreasing effects of monetary policy loosening are more pronounced in banks with small size, high liquidity, low capitalization, and high credit risk in the shadow of the COVID-19 crisis. Meanwhile, the risk-increasing impacts of monetary policy easing are conspicuous in well liquid, less capitalized, and high credit risk banks in an uncertain time of the COVID-19 crisis. These results are robust to alternative proxies of monetary policy instruments.
... Since then, the cryptocurrency market represented by Bitcoin has developed rapidly and aroused the widespread interest of regulators, scholars, and investors. A series of studies have conducted in-depth research on price formation [2][3][4], market efficiency [5][6][7], stylized facts [8,9], and price dynamics of Bitcoin [10][11][12][13][14]. Additionally, because of Bitcoin's independence over authority and significant fluctuations in its prices, the debates over whether it is a safe-haven asset and its relationship with government policy changes have caused controversy [14][15][16][17][18][19]. Especially during the trade war and COVID- 19, there has been a sudden increase in economic policy uncertainty (EPU). ...
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We investigate the dynamic correlation between the Bitcoin price (BTC) and the U.S. economic policy uncertainty index (USEPU) from the perspective of multifractality. Utilizing the multifractal detrended cross-correlation analysis (MF-DCCA), we confirm a long-range cross-correlation between BTC and USEPU. Moreover, the empirical results of MF-DCCA show that the power-law properties and multifractal characteristics between BTC and USEPU are significant. We further examine the long-range dependency of cross-correlation between BTC and USEPU series via the Hurst exponent test and confirm the durable cross-correlation. Finally, we introduce another multifractal indicator and examine the extent of multifractality among time series. The empirical results indicate that the BTC series, USEPU series, and the cross-correlation of BTC-USEPU present apparent multifractality, where BTC shows the strongest degree of multifractality.
... Particularly, as an alternative replacement of gold in terms of safe haven properties, recently Bitcoin has become increasingly a more impactful factor in finance and investment, despite its controversies and At this extraordinary time point, it then becomes critically essential and worthwhile to investigate the behavioral pattern of Bitcoin against gold with both emerging and developed market indices under the crisis circumstance, which is still lacking in the literature. In particular, even though the relationship between Bitcoin and gold has been intensively explored [Baur et al., 2018;Bouoiyour et al., 2019;Hussain Shahzad et al., 2020;Jareño et al., 2020;Klein et al., 2018;Kyriazis, 2020;Naeem et al., 2020;Selmi et al., 2018;Telli and Chen, 2020;Wu et al., 2019], the present study contributes to the literature by looking into the hedging ability of Bitcoin to crisis risks, in relation to gold. The outcomes are expected to allow the prospective investors to better select their investment types as well as to better construct their investment portfolio. ...
Preprint
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Conventionally gold is well recognized as a safe heaven and recently Bitcoin is gradually considered as an alternative as well. The outbreak of COVID-19 brings the necessity to examine the diversification capability of them to hedge risks during a crisis such as the current pandemic. In this paper, the wavelet analysis is employs to measure the coherence of the Bitcoin and gold prices with the equity markets of both the emerging and developed economies, for the time period from January to June 2020, covering months both before and after the announcement of the COVID-19 pandemic. It is indicated that during the time period studied, the returns of both Bitcoin and gold are generally not strongly correlated with the market returns of all the six representative indices examined, particularly for relatively short holding periods. That is, investors in all the six indices can benefit through Bitcoin, as well as gold, in terms of hedging. Meanwhile, Bitcoin shows to be comparatively less correlated with the indices than gold, particularly for longer holding periods. The findings hence suggest that Bitcoin and gold offer diversification benefits to investors in the market indices during a crisis such as the COVID-19 pandemic.
... Financialized precious metals and crude oil have become important hedging instruments for investors, and the price relationship between them has shifted dramatically (Li and Zhang, 2014). Precious metals play an important role in national economies' growth and are intimately linked to the normal operation of national key industries (Kang et al., 2017;Wu et al., 2019). Precious metals are also important worldwide financial investment commodities that affect financial market and global economic stability (Huynh, 2020). ...
Conference Paper
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In this article, we examine the impact of oil shocks on inflation and the price of gold. For this purpose, we use the VAR model, which is one of the common methods in time series econometrics, to estimate the hypotheses.Oil price shocks have different effects on the economies of oil exporting and importing countries. Iran is one of the oil exporting countries, where oil revenues are the main source of financing the Iranian government budget and oil price fluctuations have a great impact on the Iranian economy. Therefore, in the above article, the Iranian economy in the period March, 2011 to October, 2021 is considered. The results show that; Oil shocks affect inflation and the price of gold. In this study, in order to evaluate the effect of shocks, we shocked the variables by a standard deviation so that we could examine their effect. According to research results, the effect of inflation shock on inflation disappears after 7 periods. Also, the effect of inflation shock on the price of gold can be interpreted from period 5 to 17, which indicates a shock. The shock effect of the gold price on the gold price is neutral. Also, the effect of oil price shock on oil prices disappears after 18 periods.
... eir findings suggest that investors use gold to store value when the volatility in a market is high and sell it off when the stock market's volatility stabilizes. In normal or average market conditions, Shan et al. [53] report that neither Bitcoin nor gold could serve as a safe haven or hedge for economic policy uncertainty. Owusu Junior et al. [19] using data on gold and eight cryptocurrencies (Bitcoin, Ethereum, Dash, Litecoin, Ripple, Stellar, NEM, and Monero) from April 2013 to April 2019 and using the EEMD-based quantile-on-quantile regression to explore the hedging and diversification properties of these assets found that gold and cryptocurrencies can hedge and diversify against each other at varying times of their returns. ...
Article
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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. is 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.
Article
Purpose This research unfolds a holistic association between economic policy uncertainty (EPU) and three important markets (oil, stock and gold) in the Indian context. To do same, the current study uses the monthly dataset of each variable spanning from November 2005 to March 2022. Design/methodology/approach The authors have portrayed the wavelet-based coherence, correlation and covariance plots to explore the interaction between EPU and markets' behavior. Then, a wavelet-based quantile on quantile regression model and wavelet-based Granger causality has been applied to examine the cause-and-effect relation and causality between the EPU and markets. Findings The authors’ findings report that the Indian crude oil buyers do not need to consider Indian EPU while negotiating the oil deals in the short term and medium term. However, in case of the long-term persistence of uncertainty, it becomes difficult for a buyer to negotiate oil deals at cheap rates. EPU causes unfavorable fluctuation in the stock market because macroeconomic decisions have a substantial impact on it. The authors have also found that gold is a gauge for economic imbalances and an accurate observer of inflation resulting from uncertainty, showing a safe haven attribute. Originality/value The authors’ work is original in two aspects. First, their study solely focused on the Indian economy to investigate the impact and causal power of Indian EPU on three major components of the Indian economy: oil, stock and gold. Second, they will provide their findings after analyzing data at a very microlevel using a wavelet-based quantile on quantile and wavelet-based Granger causality.
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Several common properties shared by cryptocurrencies and precious metals, such as safe haven, hedge and diversification for risk assets, have been widely discussed since Bitcoin was created in 2008. However, no studies have explored whether cryptocurrency market uncertainties can help to explain and forecast volatilities in precious metal markets. By using the GARCH-MIDAS model incorporating cryptocurrency policy and price uncertainty, as well as several other commonly used uncertainty measures, this paper compares the in-sample impacts and out-of-sample predictive abilities of these uncertainties on volatility forecasts of COMEX gold and silver futures markets. The in-sample results demonstrate the significant impacts of cryptocurrency uncertainty on the volatilities of precious metal futures markets, and the out-of-sample evidence further confirms the superior predictive power of cryptocurrency uncertainty on volatility forecasting of the precious metal market. Our conclusions are robust through various model evaluation approaches based not only on predicting errors but also on forecasting directions across different forecasting time horizons.
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The study assessed the hedge or safe-haven property of five cryptocurrencies for stocks of three COVID-19 worst-hit African countries. We address two main concerns bordering on the predictive capacity of African stocks for cryptocurrency returns and the safe-haven property that cryptocurrencies could offer to African stocks. A distributed lag model, with explicitly incorporated salient statistical features, was adopted based on its efficient management of parameter proliferation and estimation biases. We ascertained the model’s in-sample predictability and evaluate its out-of-sample forecasts performance in comparison with the historical average model, using Clark and West statistics. While African stocks significantly predicted cryptocurrency returns, the cryptocurrency-stocks nexus revealed the diversifier and safe-haven property of cryptocurrencies for African stocks in periods of normalcy and crisis/pandemic, respectively. Our predictive model outperformed the historical average model in the out-of-sample. Our results may be sensitive to cryptocurrency-stocks nexus and sample periods but not the out-of-sample forecast horizons
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Given the skyrocketing returns earned by bitcoin, it has received widespread attention as an investment asset. The shocks experienced by stock and bond markets over time and especially during the COVID-19 pandemic has led to an evaluation of bitcoin as a wealth protection asset, a role that gold has played until now. The current paper tests the hedging and safe haven properties of bitcoin in a broad portfolio of both developed and emerging markets stocks, bonds and real estate over a period of 10 years and during COVID-19 pandemic. Using a DCC-GARCH method, the study finds weak hedge and safe haven benefits of bitcoin. The results of the study establish that there is still a long way to go before bitcoin displays a strong safe haven behavior. However, there is a need for portfolio managers to become more cognizant about bitcoin given its potential to protect their portfolios.
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We investigate whether distinctive features of the blockchain/cryptocurrency industry led to different completion rates of the announced mergers and acquisitions (M&As), relative to other industries, during the years 2013-2022. Despite having a significantly lower deal closure rate on average, we find that this effect is contained only in a few years and do not span the entire decade. We also find that bitcoin prices are an important determinant of the industry's deal completion rate. Our findings may help give a glimpse into the eventual fate of the most recent deals announced during the crypto crash that started in early 2022.
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This paper investigates the hedge and safe-haven properties of green bonds (GBs) performing as a safeguard against oil price shocks and uncertainty, in comparison to the corresponding roles of gold, the 3-month European government bills and the U.S. 3-Month T. bills. Oil price shocks are disentangled into oil supply, oil demand, and oil risk shocks based on the recent methodology of Ready (2018), generated in a framework that includes gold, oil shocks, and oil uncertainty (OVX). The ability of GBs to protect against oil price shocks and oil uncertainty is examined, using the GARCH and quantile regression (QR) models. The results show that GBs are more appropriate than gold and conventional bonds (CBs) as hedging and safe haven tools against oil price shocks and oil uncertainty. Besides, the ability of GBs to protect against oil price shocks and uncertainty depends on whether the oil shocks are supply, demand, or risk shocks. Furthermore, we find that GBs serve as a strong hedge and/or a safe haven against structural oil shocks generally under the bearish GBs market conditions. The European government bills and the US T. bills play the role of weak hedge and a safe haven asset against the oil uncertainty and the oil shocks. This role varies across quantiles (bear and bull market conditions). Relevant risk management implications are discussed.
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COVID-19 has brought significant impacts on the global economy and environment. The Global Economic-and-environmental Policy Uncertainty (GEPU) index is a critical indicator to measure the uncertainty of global economic policies. Its prediction provides evidence for the good prospect of global economic and environmental policy and recovery. This is the first study using the monthly data of GEPU from January 1997 to January 2022 to predict the GEPU index after the COVID-19 pandemic. Both Recurrent Neural Network (RNN) and Long Short-Term Memory (LSTM) models have been adopted to predict the GEPU. In general, the RNN outperforms the LSTM networks, and most results suggest that the GEPU index will remain stable or decline in the coming year. A few results point to the possibility of a short-term increase in GEPU, but still far from its two peaks during the first year of the COVID-19 pandemic. This forecast confirms that the impact of the epidemic on global economic and environmental policy will continue to wane. Lower economic and environmental policy uncertainty facilitates global economic and environmental recovery. Economic recovery brings more opportunities and a stable macroeconomic environment, which is a positive sign for both investors and businesses. Meanwhile, for the ecological environment, the declining GEPU index marks a gradual reduction in the direct impact of policy uncertainty on sustainable development, but the indirect environmental impact of uncertainty may remain in the long run. Our prediction also provides a reference for subsequent policy formulation and related research.
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This paper investigates the co-movement between cryptocurrencies and African stock returns to uncover their degree of association and global portfolio diversification benefits implementing the three-dimensional continuous Morlet wavelet transform technique. Data span 10 August 2015 to 10 December 2021 at daily frequency. The results suggest high degrees of co-movement between the asset markets at medium and lower frequencies implying that stock markets in Africa are highly exposed to cryptocurrency market disruptions from the medium term and that international investors seeking to hedge their price risk in African stock markets using cryptocurrencies may have to look at the short term. The phase difference arrow vectors implying lead (lag) effects are time-varying and heterogeneous showing no particular cryptocurrency or stock market as leader or follower. Different markets have the potential to lead or lag other markets at varying scales which may induce arbitrage opportunities for international and local investors. Our findings provide insights for policymakers, regulators and international investors as an economy’s monetary policy can be affected by the connections between the domestic capital market and other markets globally.
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The wild swings in Bitcoin’s valuation keep attracting authorities’ and policy-makers interest. Thus at present, many researchers are focus on analyzing and forecasting. The existing studies on Bitcoin price prediction are mainly in two ways: (1) study how economic factors, market and investor sentiment indicators influence Bitcoin price; (2) apply machine learning and artificial neural networks to predict the value of Bitcoin. This paper aims to implement a scenario analysis method to generate various hypothetical events and then determine their effects on the value of Bitcoin price. Scenario analysis is normally used to measure financial risk. In this paper, we propose a method that combines scenario analysis with historical data. We further aim to find the correlations among scenarios and examine the relationship between the significant shocks and Bitcoin prices. Our findings suggest that what-if analysis is a good way to measure the risk exposure of Bitcoin. The method can also be used for worse-scenario analysis to check how Bitcoin performs during crisis periods.
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This study analyses the time–frequency relationship between economic policy uncertainty (EPU), geopolitical risk (GPR), and Bitcoin returns in China, France, Russia, the UK, the US, and Germany. Bi-wavelet, partial wavelet, and multiple wavelet coherence (MWC) analyses are employed to examine the co-movements between these variables on monthly data from July, 2016, to June, 2021. The empirical findings reveal (i) strong interdependence between EPU, GPR, and Bitcoin returns in short- and long-terms in most countries, as inferred from MWC analysis. (ii) There is evidence of strong short-term co-movements between GPR and EPU, with GPR leading. The results of partial wavelet analysis imply that the two are positively correlated for most countries and Bitcoin returns have no significant impact on their co-movement. (iii) The results of bi-wavelet coherence analyses show strong positive connectedness in the short term between all pairs of EPU, GPR, and Bitcoin returns in most countries analyzed.
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The inherent relationship between gold and cryptocurrency has been verified for a long time. However, no research has explored the possible predictive ability of cryptocurrency market information on the gold market returns. Using a newly developed cryptocurrency policy uncertainty index (UCRY Policy) and an efficient forecasting method, named Dynamic Occam's Window (DOW), this paper identifies and compares the predictive power of UCRY Policy with many traditional predictors for the gold market. Our empirical results show that UCRY Policy does have good predictive power in forecasting weekly gold returns, and it is superior to many commonly used predictors throughout a data sample from 2014 to 2022. Moreover, the DOW method with various thresholds can outperform dynamic model averaging/selection (DMA/DMS) and many other conventional econometric models in forecasting weekly gold returns.
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Recent literature extensively studies the safe-haven properties of different asset classes in crisis periods. The magnitude of the economic policy uncertainty index (EPU) and the geopolitical risk (GPR) increases significantly during extreme crisis periods such as covid crisis, but the earlier literature ignores how both risk measures impact on different asset classes during severe economic downturns. In this paper, we contribute by examining the hedging and safe-haven properties of gold, oil, equities, and foreign exchange rates against the United States (US) EPU and GPR by utilizing OLS regression, quantile regression and the quantile connectedness approach for pre-covid (October 1, 2013–March 10, 2020) and post-covid data (March 11, 2020–August 27, 2021). OLS results suggest that only the stock market has positive risk premium for both uncertainty measures. With quantile regression analysis for the pre-covid period, we find that asset returns provide no hedge (hedge) across bearish (bullish) market conditions. Importantly, safe-haven properties suggest that gold is a safe-haven asset at the extreme stress condition (at higher level of USEPU shocks). Other assets also exhibit safe-haven characteristics during extreme uncertain periods with heterogeneity in safe-haven effectiveness across bearish to bullish markets. With the post-covid data, we show that S&P500 stocks and EURO hedge EPU and GPR in bullish market condition, while Oil, S&P500, Great Britain Pound, EURO, Japanese Yen display safe-haven properties at the 99% quantile of USEPU. Specifically, gold lost its safe-haven features during covid. Interestingly, results from quantile connectedness suggest that selected asset returns have the potential to diversify against uncertainty measures considering low volatility transmissions between them across the lower and higher quantiles. Our findings are important for investors and asset managers who aim to hedge EPU and GPR during the stress period.
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This study investigates whether market states impact the Bitcoin-Ether correlation. We observe an increase in the average correlation due to a rise in popularity of Ether. We also find that an increase in uncertainty leads to the low Bitcoin-Ether correlation, suggesting that investors revise the relative valuation during high market uncertainty periods. The relationship between the Bitcoin-Ether correlation and uncertainty is nonlinear, and our search volume results show that investors’ attention to both cryptocurrencies increases during the uncertainty periods.
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Many studies have discussed hedges and safe havens against stocks, but few studies focus on the hedging/safe-haven performance of assets against the currency market over different time horizons. This paper studies the connectedness, hedging and safe-haven properties of Bitcoin/gold/crude oil/commodities against six currencies across multiple investment horizons, placing a particular focus on the performance of these assets during the recent COVID-19 outbreak. Our findings suggest that the overall dependence between assets and the currency market is the strongest in the short term, and Bitcoin is the least dependent across all investment horizons. The dynamic relationships between the four assets and the currency market vary with timescales. Bitcoin offers better hedging capability in the long term and commodities emerge as the most favorable option for the optimal portfolio of currency over all time horizons. Further analysis shows that assets are better at helping investments reduce risk in the initial stages of the pandemic, and gold is an effective and robust safe haven for currencies.
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This paper studies evolution of the asymmetric sheltering role of Bitcoin compared to gold against oil-related uncertainties with varying severity of the COVID-19 pandemic. Using a varying-coefficient quantile approach, we find a safe haven role of Bitcoin, and it becomes gradually stronger when the pandemic intensifies. The relationship between gold and oil markets is shown to vary with changing severity of the pandemic. We find that gold acts as an increasingly weakened diversifier as the pandemic intensifies until a level, above which its diversification gains would dissipate then. In normal market conditions, both Bitcoin and gold perform as weak hedges for oil portfolios. Our findings demonstrate that interpretation of the sheltering role of Bitcoin and gold against oil market downturns would be biased unless the role dynamics in different market conditions and pandemic severity are considered. Additional analyses reassure robustness of our findings.
Chapter
In the study, our group examined gold and Bitcoin’s performance against the U.S. stock market for the entire year 2020 using the data from Yahoo Finance. We calculated a variety of financial ratios such as Sharpe Ratio and Treynor ratio and showed that the overall performance of the two assets have a strong correlation with COVID-19. Specifically, we recognized that investors might benefit from holding these assets during financial stress. Our findings are useful for investors and financial advisors searching for the best asset among traditional safe havens and newly emerged cryptocurrencies to hedge extreme negative movements in the stock market.
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This paper investigates whether the uncertainty-hedging aura of gold has faded away. The rolling window Granger causality tests are employed to detect the mutual relationship between the world uncertainty index (WUI) and gold price (GP). We find the positive influence that ripples from WUI towards GP, which indicates that gold keeps the uncertainty-hedging aura in times of economic and political disarray. GP may increase during certain high WUI periods to hedge risks of losses, and it also shows a declining trend during periods of low WUI. The results can be explained by the Intertemporal Capital Asset Pricing Model, which emphasizes that GP should lead to a positive response to WUI. In turn, the negative impact from GP to WUI suggests that the global political and economic situation can be predicted through the gold market. Therefore, investors are able to optimize the design of portfolios involving gold to hedge against the WUI. Furthermore, governments can analyze the global uncertainty trends through the path of GP, adjust policy formulations, counteract potential negative effects on the economy and promote the stable development of the world.
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Purpose- Investigating the relationship between the energy consumption for Bitcoin and the price and policy uncertainties in the cryptocurrency markets. Methodology- It was preferred for unit root tests of series the Zivot-Andrews Unit Root Test, which takes into account structural breaks. Depending on the stagnation of the variables at different levels, the Toda-Yamamoto (1995) causality test was applied by using weekly data in period 19.02.2017 and 07.02.2021. Findings- One-way causality was found on the indices of cryptocurrency price uncertainty and cryptocurrency policy uncertainty from bitcoin energy consumption. In addition, it is understood from the Chi-Square Test Statistic (13.16980) coefficient that the change in bitcoin energy consumption is more dominant on the crypto money policy uncertainty. It was reached that changes in bitcoin energy consumption have an effect on both price and crypto money policies in all crypto markets. Conclusion- In line with these results, it is concluded that the uncertainties in the crypto markets are under the influence of many external political factors. This study investigated the effect of price and political uncertainty on bitcoin energy consumption in the entire cryptocurrency market, but it was concluded that bitcoin energy consumption is not only linked to crypto markets, but also under the influence of government interventions, bans, ill-recognition, and developments and movements in other financial markets.
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Combining the spillover index approach and LASSO-VAR method, we construct the spillover network of 19 specific countries’ economic policy uncertainty (EPU). Then we deconstruct the constructed network into four blocks by the block models, the impacts of COVID-19 on EPU spillover effects between each country and blocks is analyzed gradually. The results reveal that: (1) The transnational contagion of EPU is significant, and the spillover network of policy uncertainty is time-varying. (2) EPU networks can be divided into four different blocks by block models. The role of blocks and the spatial spillover transmission path between blocks are different in different periods. (3) The new infection cases and deaths of COVID-19 have a significant effect on reception and transmission directional EPU spillovers, while there is no significant impact on net spillovers. The international movement restrictions during the period of COVID-19 significantly increase the directional and net EPU spillovers. Our findings have some implications for policy-makers and market regulators in the context of the COVID-19 pandemic.
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In the research, the causal relationships between Bitcoin, gold and oil prices were examined. The data of the research covers the period from 2015 to July 2020 and consists of daily price values. Augmented Dickey-Fuller Unit Root Test was used to see whether the stochastic process changes with time. Bitcoin and gold series do not contain a unit root since the oil series is stationary at the level while the difference is stationary. The reason why the series containing unit roots are not stationary is due to structural breaks or not, was investigated by Bai-Perron Unit Root Test with Multiple Structural Breaks. According to the test, it was determined that the Bitcoin series has one break and two regimes, while the gold series has two structural breaks and three different regimes. Whether the research series are cointegrated or not was investigated with the Gregory and Hansen test. The causality between the series was examined with the Toda-Yamamoto causality test, which is based on the VAR (Vector Autoregression) model and examines the causality in the series regardless of the unit root. A two-way causality relationship was determined between the eight lag-long Gold series and the Bitcoin series. In other cases, a causal relationship has not been established. As a result, we give an evidence that Bitcoin and gold prices series followed a parallel pattern while with oil not. Therefore, investors can add Bitcoin into their portfolios to make balance of the risk and return.
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Using NARDL methodology, this research investigates some asymmetric and non-linear interconnections between leading cryptocurrency and commodity returns. Thus, this study explores potential interconnections between these cryptocurrencies and commodity markets in the period between March 07, 2018, and March 26, 2021. This paper splits the entire sample period into two independent sub-periods in order to enhance robustness: pre-COVID and COVID, to examine the impact of the pandemic on these markets. Our results confirm that the most relevant interconnection (in terms of cointegration, short-and long-asymmetry, and the persistence of the lags) between cryptos and commodities is focused on COVID-19, the pandemic sub-period, in line with previous literature. Finally, the study reveals that some cryptocurrencies such as Tether could serve as a diversifying asset or even a safe haven, in certain scenarios, in investment strategies.
Article
Purpose Perhaps the most popular pricing model among Bitcoin enthusiasts is the stock-to-flow (S2F) model. The model gained significant traction after successfully predicting the meteoric rise of Bitcoin prices from late 2020 to early 2021. This paper dissects the S2F model for Bitcoin empirically to determine its viability and investigate whether investors can profit from an S2F-based trading strategy. Design/methodology/approach This paper, dissects the S2F model for Bitcoin by putting it through a battery of tests to examine its design, characteristics, robustness and appropriateness. Findings Overall, this paper finds the S2F model to be insensitive to differing assumptions in the early stages of the model, alleviating concerns about data mining. This paper produces a dynamic S2F model with no peek-ahead bias and shows evidence that prediction accuracy increases over time. Finally, this paper shows that a dynamic trading strategy that goes long (short) when Bitcoin is undervalued (overvalued) according to S2F is far less profitable than a classic buy-and-hold strategy. Originality/value To the best of the authors’ knowledge, this is the first paper to analyze the S2F model in an academic setting by providing a rigorous assessment of the model's construction. This paper demonstrates how the model can be implemented realistically without the peek-ahead bias, creating a tool that can be used contemporaneously by investors.
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This paper examines return and volatility connectedness between Bitcoin, traditional financial assets (Crude. To this end, the Time-Varying Parameter Vector Autoregression (TVP-VAR) model, dynamic connectedness approaches, and network analyses are used. The results indicate that total spillover indices reached unprecedented levels during COVID-19 and have remained high since then. The evidence also confirms the high return and volatility spillovers across markets during the COVID-19 era. Regarding the return spillovers, Gold is the centre of the system and demonstrates the safe heaven properties. Bitcoin is a net transmitter of volatility spillovers to other markets, particularly during the COVID-19 period. Furthermore, the causality-in-variance Lagrange Multiplier (LM) and the Fourier LM tests' results confirm a unidirectional volatility transmission from Bitcoin to Gold, Stocks, Bonds, the VIX and Crude Oil. Interestingly the EPU is the only global factor that causing higher volatility in Bitcoin. Several potential implications of the results are also discussed.
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Bitcoin was launched to solve the distrust and uncertainty in the existing financial system. Here we investigate risk spillover effect from economic policy uncertainty (EPU) to Bitcoin using a multivariate quantile model and the Granger causality risk test. We use the US EPU index, equity market uncertainty index, and VIX as proxies for EPU. We find that risk spillover effect from EPU to Bitcoin is negligible in most conditions. Our work provides useful information on building asset portfolios for investors who have investment strategies in Bitcoin, because Bitcoin can be acted as a safe-haven or a diversifier under EPU shocks.
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We apply different techniques and uncover the quantile conditional dependence between the global financial stress index and Bitcoin returns from July 18, 2010, to December 29, 2017. The results from the copula-based dependence show evidence of right-tail dependence between the global financial stress index and Bitcoin returns. We focus on the conditional quantile dependence and indicate that the global financial stress index strongly Granger-causes Bitcoin returns at the left and right tail of the distribution of the Bitcoin returns, conditional on the global financial stress index. Finally, we use a bivariate cross-quantilogram approach and show only limited directional predictability from the global financial stress index to Bitcoin returns in the medium term, for which Bitcoin can act as a safe-haven against global financial stress.
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This paper analyzes the determinants of the price of gold with a special focus on four uncertainty measures (namely, the volatility (VIX), the skewness (SKEW), the global economic policy uncertainty (EPU), and the partisan conflict (PC) indexes). The nonlinear Autoregressive-distributed Lag (ARDL) model is used to investigate the asymmetric effect of uncertainty measures on gold prices. The results show that a worsening of economic policy uncertainty contributes to increases in the price of gold. By contrast, gold prices are less likely to fall when economic policy conditions have been improved.
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We review the literature on gold as an investment. We begin with a review of how the gold markets operate, including the under researched leasing market; we proceed to examine research on physical gold demand and supply, gold mine economics and move onto analyses of gold as an investment. Additional sections provide context on gold market efficiency, the issue of gold market bubbles, gold’s relation to inflation and interest rates, and the very nascent literature on the behavioural aspects of gold.
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During times of market turmoil, investors often seek to mitigate the risk associated with traditional investment assets such as equities and debt. The hedging, safe-haven and downside risk reduction properties of gold are examined in this paper for investors with short- and long-run horizons. Utilizing wavelet analysis, we find that gold acts as a short-run hedge for a variety of international equity and debt markets. The safe haven properties of gold during financial crises are further established, with gold shown to act as a safe haven for equity and debt investors across all horizons. Finally, gold is shown to reduce portfolio downside risk in the short-term but may actually contribute to increased long horizon downside risk during recessionary periods.
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This paper addresses the timely question of whether Bitcoin exhibits a safe-haven property for stock market investments during extreme market conditions and whether such a property is similar to or different from that of gold and the general commodity index. We propose a new definition of a weak and strong safe-haven within a bivariate cross-quantilogram approach. This definition considers the lowest tails of both the safe-haven asset and the stock index. Our sample period spans from 19 July 2010 until 22 February 2018 and focuses on several stock market indices, including those of the US, China, and other developed and emerging economies. Our main results show that, at best, each of Bitcoin, gold, and the commodity index can be considered as a weak safe-haven asset in some cases. Rolling-window predictability analyses generally confirm those results and reveal that the safe-haven roles of Bitcoin, gold, and commodities are time-varying and differ across the stock market indices under study.
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We assess whether the long-run volatilities of Bitcoin, global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results provide evidence supporting this hypothesis, except in the case of bonds. For Bitcoin investors, the results imply the ability to use information about the state of global economic uncertainty to enhance the predictions of Bitcoin volatility. We further examine whether the correlation between Bitcoin and global equities, commodities, and bonds are affected by global economic policy uncertainty. Empirical results reveal that global economic policy uncertainty has a negative significant impact on the Bitcoin-bonds correlation and a positive impact on both Bitcoin-equities and Bitcoin-commodities correlations, suggesting the possibility of Bitcoin acting as a hedge under specific economic uncertainty conditions. Interestingly, the hedging effectiveness of Bitcoin for both global equities and global bonds enhances slightly after considering the level of global economic policy uncertainty. Such a weak effect of the state of global economic uncertainty on the hedging ability of Bitcoin implies that investors cannot substantially enhance the hedging performance of Bitcoin under different economic uncertainty conditions.
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Economic policies play a vital role in shaping economic development of an economy, and any uncertainty in the policies slows down its development process. Several factors are identified as predictors of economic policy uncertainty, and of these, gold price has been identified as the most significant. Therefore, the purpose of this study is to examine the association between economic policy uncertainty and gold prices by using the monthly data from 1995 (January) to 2017 (March). The standard linear Granger causality test and nonparametric causality-in-quantiles approach have been applied for empirical purpose. The standard linear Granger causality test shows that no causal association exists between economic policy uncertainty and gold prices. Then, the nonparametric causality-in-quantiles test given by Balcilar et al. (2016a) is applied. This approach allows for examining the quantile causality-in-mean and variance. The result of the nonparametric causality-in-quantiles shows the rejection of null hypothesis, which implies that economic policy uncertainty causes gold prices in all the examined countries, especially at the low tails. Moreover, the quantile causality-in-variance also shows the acceptance of null hypothesis in the majority of the cases. This study provides valuable implications for academics , policy makers, and investors.
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This paper analyzes the prediction power of the economic policy uncertainty (EPU) index on the daily Bitcoin returns. Using the Bayesian Graphical Structural Vector Autoregressive model as well as the Ordinary Least Squares and the Quantile-on-Quantile Regression estimations, the paper finds that the EPU has a predictive power on Bitcoin returns. Fundamentally, Bitcoin returns are negatively associated with the EPU. However, the effect is positive and significant at both lower and higher quantiles of Bitcoin returns and the EPU. In the light of these findings, the paper concludes that Bitcoin can serve as a hedging tool against uncertainty.
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We study the relationship between Bitcoin and commodities by assessing the ability of Bitcoin to act as a diversifier, hedge, or safe haven against daily movements in commodities in general, and energy commodities in particular. We focus on energy commodities because energy, in the form of electricity, is an essential input in the Bitcoin production. For the entire period, results show that Bitcoin is a strong hedge and a safe-haven against movements in both commodity indices. We further examine whether that ability is also present for non-energy commodities and our analysis show insignificant results when energy commodities are excluded from the general commodity index. We also account for the December 2013 Bitcoin price crash and our results reveal that Bitcoin hedge and safe-haven properties against commodities and energy commodities are only present in the pre-crash period, whereas in the post-crash period Bitcoin is no more than a diversifier. In addition to uncovering the time-varying role of Bitcoin, we highlight the dissimilarity in the dynamic correlations between the extreme downward and extreme upward movements.
Article
We examine whether Bitcoin can hedge global uncertainty, measured by the first principal component of the VIXs of 14 developed and developing equity markets. After decomposing Bitcoin returns into various frequencies, i.e., investment horizons, and given evidence of heavy-tails, we employ quantile regression. We reveal that Bitcoin does act as a hedge against uncertainty: it reacts positively to uncertainty at both higher quantiles and shorter frequency movements of Bitcoin returns. Further, we use quantile-on-quantile regression and identify that hedging is observed at shorter investment horizons, and at both lower and upper ends of Bitcoin returns and global uncertainty.
Article
This paper conducts a comprehensive empirical study of hedging potential of gold against adverse movements of stock prices, inflation and exchange rate for India, Pakistan and the United States. Using daily and monthly data covering the period of 1990 to 2013, this paper first explains the average gold returns using an EGARCH model. The paper also investigates whether hedging potential of gold remains equally strong in several bearish and bullish conditions of gold market using a quantile regression approach. It was found that there is a fairly robust evidence of gold acting as a safe haven against exchange rate risk in Pakistan and India. However, the evidence of gold hedging stock market risk is not uniformly strong in varying gold market conditions in the three countries. Also the evidence that gold hedges inflation risk in the US is realized only during the average and bearish conditions of gold market but not during bullish trends. The paper found robust evidence of gold acting as a safe haven against deteriorating local currency in Pakistan using daily data. The hedging and safe have benefit of gold against currency risk is also fairly strong in India as evidenced in the daily data. Thus, the empirical findings of gold acting as either a hedge or a safe haven against the risks in other asset markets need some qualification pertaining to the gold market condition itself.
Article
Urquhart (2016) investigated the market efficiency of Bitcoin by means of five different tests on Bitcoin returns. It was concluded that the Bitcoin returns do not satisfy the efficient market hypothesis. We show here that a simple power transformation of the Bitcoin returns do satisfy the hypothesis through the use of eight different tests. The transformation used does not lead to any loss of information.
Article
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.
Article
We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence – including human readings of 12,000 newspaper articles – indicate that our index proxies for movements in policy-related economic uncertainty. Our US index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt-ceiling dispute and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defense, healthcare, finance and infrastructure construction. At the macro level, innovations in policy uncertainty foreshadow declines in investment, output, and employment in the United States and, in a panel VAR setting, for 12 major economies. Extending our US index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upwards since the 1960s.
Article
This paper explores the financial asset capabilities of bitcoin using GARCH models. The initial model showed several similarities to gold and the dollar indicating hedging capabilities and advantages as a medium of exchange. The asymmetric GARCH showed that bitcoin may be useful in risk management and ideal for risk averse investors in anticipation of negative shocks to the market. Overall bitcoin has a place on the financial markets and in portfolio management as it can be classified as something in between gold and the American dollar on a scale from pure medium of exchange advantages to pure store of value advantages.
Article
This paper considers reform possibilities posed by a type of base money that has heretofore been overlooked in the literature on monetary economics. I call this sort of money "synthetic" commodity money because it shares features with both commodity money and fiat money, as these are usually defined, without fitting the conventional definition of either; examples of such money are Bitcoin and the "Swiss dinars" that served as the currency of northern Iraq for over a decade. I argue that the attributes of synthetic commodity money are such as might supply the basis for a monetary regime that does not require oversight by any monetary authority, yet is capable of providing for all such changes in the money stock as may be needed to achieve a high degree of macroeconomic stability.
Article
The aim of this paper is to examine the role of gold in the global financial system. We test the hypothesis that gold represents a safe haven against stocks of major emerging and developing countries. A descriptive and econometric analysis for a sample spanning a 30Â year period from 1979 to 2009 shows that gold is both a hedge and a safe haven for major European stock markets and the US but not for Australia, Canada, Japan and large emerging markets such as the BRIC countries. We also distinguish between a weak and strong form of the safe haven and argue that gold may act as a stabilizing force for the financial system by reducing losses in the face of extreme negative market shocks. Looking at specific crisis periods, we find that gold was a strong safe haven for most developed markets during the peak of the recent financial crisis.
Article
This paper addresses two questions. First, we investigate whether gold is a hedge against stocks and/or bonds and second, we investigate whether gold is a safe haven for investors if either stocks or bonds fall. A safe haven is defined as a security that loses none of its value in case of a market crash. This is counterpoised against a hedge, defined as a security that does not co-move with stocks or bonds on average. We study constant and time-varying relationships between stocks, bonds and gold in order to investigate the existence of a hedge and a safe haven. The empirical analysis examines US, UK and German stock and bond prices and returns and their relationship with the Gold price. We find that (i) Gold is a hedge against stocks, (ii) Gold is a safe haven in extreme stock market conditions and (iii) Gold is a safe haven for stocks only for 15 trading days after an extreme shock occurred.
Crypto trading volume hikes as turkey citizens interest shifts from plunging lira to Bitcoin
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S. Wu, et al. Finance Research Letters 31 (2019) 171-178