Dynamic Interactions Between the Bitcoin Price Index and Widely Traded Financial Assets: Evidence from the Recent COVID-19 Crisis

Wafa Kammoun, Taher Hamza () and Wael Louhichi
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Taher Hamza: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Wael Louhichi: ESSCA - ESSCA – École supérieure des sciences commerciales d'Angers = ESSCA Business School

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Abstract: We investigate the connectedness between the Bitcoin Price Index (BPI) and widely traded financial assets from different markets (equities, bonds, commodities and fiat currency). Using daily data from 5 August 2013 to 31 August 2021 (before and during the COVID-19 crisis), we run the VAR model estimation to investigate any connectedness between the BPI and financial assets, followed by the Granger causality test. We then test Diebold and Yilmaz's (2012) framework to analyse the spill-over effects among our set of variables. Our empirical results provide strong evidence that the BPI index exhibits significant independence from widely traded financial assets. This independence is less pronounced during the COVID-19 crisis, but remains relatively important. To test whether Bitcoin constitutes a relevant diversification vehicle, we compute the Sharpe portfolio performance index of two portfolios of conventional assets with and without the BPI, before and during the COVID-19 crisis. Our results show that the introduction of the BPI index as a diversification asset does not improve portfolio performance. Overall, our empirical findings are robust to different robustness tests and provide several implications for hedgers, portfolio managers and policymakers.

Keywords: Bitcoin Price Index; Financial market assets; Dynamic dependence; Spill-over; Time varying; COVID-crisis; Portfolio performance; Portfolio diversification. (search for similar items in EconPapers)
Date: 2022-12-22
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Published in Bankers Markets & Investors : an academic & professional review, 2022, 170 (3), pp.59-72. ⟨10.54695/bmi.170.6769⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05126082

DOI: 10.54695/bmi.170.6769

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