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Quantile spillovers and dependence between Bitcoin, equities and strategic commodities

Christian Urom, Ilyes Abid, Khaled Guesmi and Julien Chevallier

Economic Modelling, 2020, vol. 93, issue C, 230-258

Abstract: This paper has two aims. We first examine the dynamic spillovers between Bitcoin and 12 developed equities, gold, and crude oil for different market conditions using a Bayesian Time-Varying Parameter Vector Autoregressive (TVP-VAR) model with daily spot prices. Our econometric approach enables us to capture the left and right tails as well as the shoulders of the return distribution corresponding to volatility spillovers under the bear, normal, and bull market states among these financial assets. We quantify and trace the dependence and directional predictability from Bitcoin to other assets using the sample cross-quantilogram. Our key findings offer convincing evidence of time variation in the level of volatility. Spillovers between Bitcoin and other financial assets intensify during extreme global market conditions. Secondly, results from the cross-quantilogram indicate strong dependence and positive directional predictability between Bitcoin and most equities and crude oil when market returns are bullish. However, during the bearish market period, there is negative dependence and predictability from Bitcoin to stocks in Finland, the Netherlands, the U.S.A, and the crude oil market only. This implies that Bitcoin can act as a hedge to stocks in Finland, the Netherlands, the U.S.A, and the crude oil market. However, insignificant dependence and directional predictability from Bitcoin to the remaining assets indicate that Bitcoin may act as a safe-haven to these assets during bearish markets. Our findings hold important implications for both international investors and portfolio managers who consider Bitcoin as part of their portfolio diversification and other investment strategies.

Keywords: Bitcoin; Directional predictability; Volatility spillover; Cross-quantilogram; Oil price; Financial markets (search for similar items in EconPapers)
JEL-codes: F37 O16 Q40 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
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DOI: 10.1016/j.econmod.2020.07.012

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