Tail dependence between Bitcoin and financial assets: Evidence from a quantile cross-spectral approach

Aktham Maghyereh and Hussein Abdoh

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: Using daily price data for Bitcoin and 10 representative financial assets from the stock, commodity, gold, foreign exchange and bond markets from 2011 to 2019, we study the tail dependence between returns for Bitcoin and these other financial assets using the novel “quantile cross-spectral dependence” approach of Baruník and Kley (2019). We find evidence of right-tail dependence between Bitcoin returns and the S&P 500 in the long term and weaker normal return dependence between Bitcoin and the US Dollar (USD)–Euro (EUR) foreign exchange rate in the monthly term. In addition, we note that the dependence between Bitcoin and commodity as well as oil, and silver decrease the most within their respective medium return quantiles over the short term. Furthermore, we document a one-way causality running from each of the financial assets considered to Bitcoin in different quantiles of the return distribution. In sum, our findings support the notion that Bitcoin can provide financial diversification in certain return quantiles (i.e., bear, normal, or bull asset conditions) and time frequencies (i.e., short, medium, or long term investment horizon).

Keywords: Bitcoin; Causality-in-quantiles; Quantile cross-spectral dependence; Wavelet coherence; Time frequency (search for similar items in EconPapers)
JEL-codes: C32 G15 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (51)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301897

DOI: 10.1016/j.irfa.2020.101545

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