COVID-19 and the volatility interlinkage between bitcoin and financial assets

Aktham Maghyereh and Hussein Abdoh ()
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Hussein Abdoh: The Citadel: The Military College of South Carolina

Empirical Economics, 2022, vol. 63, issue 6, No 3, 2875-2901

Abstract: Abstract We investigate the effects of COVID-19 on volatility connectedness between bitcoin and five traditional financial assets from the gold, oil, foreign exchange, stock, and bond markets, employing high-frequency data. The empirical analyses are carried out using the wavelet coherence approach and dynamic frequency-domain connectedness method. Our results generally indicate that the volatility dynamics between bitcoin and the financial assets are weak or negative before the pandemic while they become positive during the pandemic times for most of the assets. Further, the volatility connectedness for bitcoin-gold and bitcoin-foreign exchange pairs is most significant in the short term, while it is significant in the intermediate term for bitcoin-oil and bitcoin-equity pairs during the pandemic. We examine optimal portfolios to hedge Bitcoin shocks at multiple investment horizons during the pandemic. We find that most of these financial assets perform as a good hedger against Bitcoin shocks in the short and long term but not in the medium term.

Keywords: COVID-19; Wavelet coherence; Volatility interdependence; Bitcoin; Dynamic Frequency-domain connectedness (search for similar items in EconPapers)
JEL-codes: C14 C58 G10 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (19)

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DOI: 10.1007/s00181-022-02223-7

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