Forecasting developed and BRICS stock markets with cryptocurrencies and gold: generalized orthogonal generalized autoregressive conditional heteroskedasticity and generalized autoregressive score analysis

Ahmed Jeribi and Achraf Ghorbel

International Journal of Emerging Markets, 2021, vol. 17, issue 9, 2290-2320

Abstract: Purpose - The purpose of this paper is threefold. First, it models and forecasts the risk of the five leading cryptocurrencies, stock market indices (developed and BRICS) and gold returns. Second, it conducts different backtesting procedures forecasts. Third, it focuses on the hedging potential of cryptocurrencies and gold. Design/methodology/approach - The authors used the generalized autoregressive score (GAS) models to model and forecast the risk of cryptocurrencies, stock market indices and gold returns. They conduct different backtesting procedures of the 1% and 5%-value-at-risk (VaR) forecasts. They also use the generalized orthogonal generalized autoregressive conditional heteroskedasticity (GO-GARCH) model to explore the hedging potential of cryptocurrencies by estimating the dynamic conditional correlation between cryptocurrencies and gold, on the one hand, and stock markets on the other hand. Findings - When conducting different backtesting procedures of VaR, our finding suggests that Bitcoin has the highest VaR among cryptocurrencies and Gold and the BRICS indices returns have lower VaR compared to the developed countries. Finally, we provide evidence that the risks among developed stock markets can be hedged by Bitcoin and Gold. Bitcoin can be considered as the new Gold for these economies. Unlike Bitcoin, Gold can be considered as a hedge for Chinese and Indian investors. However, Gold and Bitcoin can be considered as diversifier assets for the other BRICS economies while Dash and Monero are diversifier assets for developed stock markets. Originality/value - The first paper's empirical contribution lies in analyzing optimal forecast models for cryptocurrencies (other than Bitcoin) returns and risk. The second contribution consists of studying the hedging potential of five leading cryptocurrencies. To the best of our knowledge, no previous studies have investigated the role of cryptocurrencies for BRICS investors.

Keywords: GAS; GO-GARCH; VaR; Cryptocurrencies; Stock market indices; Gold; Hedging (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-06-2020-0688

DOI: 10.1108/IJOEM-06-2020-0688

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