Bitcoin versus high-performance technology stocks in diversifying against global stock market indices

Jeffrey Chu, Stephen Chan and Yuanyuan Zhang

Physica A: Statistical Mechanics and its Applications, 2021, vol. 580, issue C

Abstract: This paper investigates Bitcoin in finance but from the perspective of technology. Through comparing the relationship between the returns of Bitcoin (in terms of the US Dollar, Korean Won, and Euro) and high-performance technology stocks, with a range of global stock markets, we investigate whether there is any evidence of potential hedging and diversification properties and whether these are conditional on the states of the respective markets. We implement a quantile-on-quantile regression method to examine the relationship between both Bitcoin returns and technology stock returns, and stock market returns at varying quantiles. Our results show that although Bitcoin and high-performance technology stocks arguably share many similarities, it is clear that Bitcoin exhibits significant differences compared with high-performance technology stocks in terms of the diversification properties against global stock markets. With respect to the US stock markets, Bitcoin appears to be a consistent hedge when it is in a bullish state, however, there is some divergence in the relationships in relation to the European and Asian stock markets. In particular, Bitcoin (in terms of the Korean Won) may act as a safe haven against Asian stock markets when both are in a bearish state, although there does not appear to be strong and consistent evidence of this safe haven property across all Bitcoin returns and stock markets. From a financial perspective, this may suggest that individuals do not see and treat Bitcoin as a technology (or a technology company), but rather further supports the view of Bitcoin as a potential investment for financial gain (given its diversification properties).

Keywords: Bitcoin; Technology stocks; Stock returns; Quantile-on-quantile regression; Diversification (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:580:y:2021:i:c:s0378437121004349

DOI: 10.1016/j.physa.2021.126161

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