Price efficiency and safe-haven property of Bitcoin in relation to stocks in the pandemic era

Natalia Diniz-Maganini and Abdul A. Rasheed

Studies in Economics and Finance, 2021, vol. 39, issue 3, 403-418

Abstract: Purpose - When investors experience extreme uncertainty, they seek “safe havens” to reduce their risk, to limit their losses and to protect the value of their portfolios. The purpose of this paper is to examine the safe-haven properties of Bitcoin compared to the stock market. Design/methodology/approach - Based on intraday data, this study compares the price efficiencies of Bitcoin and Morgan Stanley Capital Index (MSCI) using Multifractal Detrended Fluctuation Analysis for the second half of 2020. This study then evaluates Bitcoin’s safe-haven property using Detrended Partial-Cross-Correlation Analysis (DPCCA). Findings - This study finds that the price efficiency of Bitcoin is lower than that of MSCI. Further, Bitcoin was not a safe haven at any time for the MSCI index. The net cross-correlations between Bitcoin and MSCI are weak and they vary at different time scales. Research limitations/implications - The behavior of market prices varies over time. Therefore, it is important to replicate this study for other time periods. Social implications - The paper sheds light on the price behavior of Bitcoin during a period of instability. The results suggest that the construction of portfolios should differ based on the time horizons of the investors. Originality/value - The authors compare Bitcoin against a global equity index instead of a specific country index or commodity. They also demonstrate the applicability of DPCCA in finance research.

Keywords: Market efficiency; Safe-haven; COVID-19; Bitcoin; Intraday data; MSCI index (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-06-2021-0235

DOI: 10.1108/SEF-06-2021-0235

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