Bitcoin Prices and the Realized Volatility of US Sectoral Stock Returns

Elie Bouri (), Afees Salisu and Rangan Gupta
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Elie Bouri: Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon

No 202224, Working Papers from University of Pretoria, Department of Economics

Abstract: Recent research suggests stronger ties between Bitcoin and US stock markets. In this paper, we examine the predictive power of Bitcoin prices for the realized volatility of the US stock market index and its various sectoral indices. Using data over the period 22 November 2017 and 30 December 2021, we conduct in-sample and out-of-sample analyses over multiple forecast horizons and evidence that Bitcoin prices contain significant predictive power for the volatility of US stocks. Specifically, an inverse relationship exists between Bitcoin prices and the realized volatility of US stock sector indices. The model that includes Bitcoin prices consistent outperforms the benchmark historical average model, irrespective of the various stock sectors and multiple of forecast horizons. The use of Bitcoin prices as a predictor yields higher economic gains. These findings highlight the power and utility of observing Bitcoin prices when forecasting the realized volatility of US stock sectors, which matter to practitioners, and academics, and policymakers.

Keywords: Bitcoin prices; S&P 500 index; US stock sector indices; realized volatility prediction; economic gains (search for similar items in EconPapers)
Pages: 19 pages
Date: 2022-05
New Economics Papers: this item is included in nep-fmk, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202224

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