Does natural gas volatility affect Bitcoin volatility? Evidence from the HAR-RV model

Akihiro Omura, Adrian (Wai-Kong) Cheung () and Jen Je Su

Applied Economics, 2024, vol. 56, issue 4, 414-425

Abstract: While volatility spillover is a vital research area in financial economics (due to its importance for risk valuation and portfolio diversification strategies), the volatility linkage between Bitcoin and electricity/energy markets has not received adequate attention. As the Bitcoin mining cost comes mainly from electricity (which is highly dependent on natural gas), we hypothesize that natural gas is a non-trivial Bitcoin price volatility driver and aim to test if this is the case. Specifically, we employ a widely used model called the HAR-RV model to assess volatility spillover across Bitcoin and natural gas using high-frequency data. We find a spillover effect from natural gas to Bitcoin, and the positive (negative) component of natural gas volatility stabilizes (destabilizes) Bitcoin volatility. The spillover effect is further examined and confirmed using an out-of-sample approach.

Date: 2024
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DOI: 10.1080/00036846.2023.2168608

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