Safe-haven Effectiveness of Cryptocurrency: Evidence from Stock Markets of COVID-19 worst-hit African Countries

Isiaka Raifu and Ahamuefula Ogbonna

MPRA Paper from University Library of Munich, Germany

Abstract: The study assessed the hedge or safe-haven property of five cryptocurrencies for stocks of three COVID-19 worst-hit African countries. We address two main concerns bordering on the predictive capacity of African stocks for cryptocurrency returns, and the safe-haven property that cryptocurrencies could offer to African stocks. A distributed lag model, with explicitly incorporated salient statistical features, was adopted based its efficient management of parameter proliferation and estimation biases. We ascertained the model’s in-sample predictability and evaluate its out-of-sample forecasts performance in comparison with historical average model, using Clark and West statistics. While African stocks significantly predicted cryptocurrency returns, the cryptocurrency-stocks nexus revealed the diversifier and safe-haven property of cryptocurrencies for African stocks in periods of normalcy and crisis/pandemic, respectively. Our predictive model outperformed the historical average model in the out-of-sample. Our results may be sensitive to cryptocurrency-stocks nexus, sample periods but not the out-of-sample forecast horizons.

Keywords: COVID-19; Cryptocurrency; Distributed Lag Model; Hedge; Safe-Haven (search for similar items in EconPapers)
JEL-codes: C51 C58 G11 (search for similar items in EconPapers)
Date: 2021-01-19
New Economics Papers: this item is included in nep-afr, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:113139

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