Investigating the nature of interaction between crypto-currency and commodity markets

Tarek Bouazizi (), Emilios Galariotis, Khaled Guesmi and Panagiota Makrychoriti

International Review of Financial Analysis, 2023, vol. 88, issue C

Abstract: This paper investigates the dynamic relationship and volatility spillovers between cryptocurrency and commodity markets using different multivariate GARCH models. We take into account the nature of interaction between these markets and their transmission mechanisms when analyzing the conditional cross effects and volatility spillovers. Our results confirm the presence of significant returns and volatility spillovers, and we identify the GO-GARCH (2,2) as the best-fit model for modeling the joint dynamics of various financial assets. Our findings show significant dynamic linkages and volatility spillovers between gold, natural gas, crude oil, Bitcoin, and Ethereum prices. We find that gold can serve as a safe haven in times of economic uncertainty, as it is a good hedge against natural gas and crude oil price fluctuations. We also find evidence of bidirectional causality between crude oil and natural gas prices, suggesting that changes in one commodity's price can affect the other. Furthermore, we observe that Bitcoin and Ethereum are positively correlated with each other, but negatively correlated with gold and crude oil, indicating that these cryptocurrencies may serve as useful diversification tools for investors seeking to reduce their exposure to traditional assets. Our study provides valuable insights for investors and policymakers regarding asset allocation and risk management, and sheds light on the dynamics of financial markets.

Keywords: Diag-BEKK model; CCC model; DCC model and GOGARCH model; Gold; Natural gas; Crude oil (search for similar items in EconPapers)
JEL-codes: G15 G17 O33 Q40 Q41 Q43 Q47 Q48 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:88:y:2023:i:c:s1057521923002065

DOI: 10.1016/j.irfa.2023.102690

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