Economics at your fingertips  

Could stock hedge Bitcoin risk(s) and vice versa?

David Okorie ()

Digital Finance, 2020, vol. 2, issue 1, No 6, 117-136

Abstract: Abstract This paper is saddled with the task of investigating the Bitcoin market behavior in the presence of a government risk. This is because both the institutional and retail investors’ interests in the Bitcoin market are growing rapidly. Conversely, the seemingly unregulated nature of this market is a serious concern to most economies and results to the placement of ban on Initial Coin Offering (ICO) in some economies by the government. Daily series of return and volume within the window of the ICO ban in China was used for the Bitcoin market and S&P500 stock market to examine the effect of a government risk in the Bitcoin market and possible hedging capabilities. Empirical results show that the ban dampened Bitcoin returns and the returns from each market can predict the other. The Exogenous Dynamic Conditional Correlation (Exo-DCC) model result suggests that, yes! the S&P500 stocks are capable of hedging Bitcoin risk, while Bitcoin can also hedge S&P500 stocks’ risks and vice versa. The Exogenous BEKK (Exo-BEKK) model result shows evidence of bidirectional volatility spill over between the two markets studied. In practice, investors (institutions and retailers) can comfortably form a robust investment portfolio with (at least) these two assets and develop a hedging strategy, such that the impacts of risks on the portfolio’s returns are safely hedged.

Keywords: Risk management; Hedging; Return; Volatility; Bitcoin; Stock (search for similar items in EconPapers)
JEL-codes: D81 G12 G32 R53 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

DOI: 10.1007/s42521-019-00011-0

Access Statistics for this article

Digital Finance is currently edited by Wolfgang Karl Härdle, Steven Kou and Min Dai

More articles in Digital Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2021-03-28
Handle: RePEc:spr:digfin:v:2:y:2020:i:1:d:10.1007_s42521-019-00011-0