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Spillovers between Bitcoin and other Assets during Bear and Bull Markets

Elie Bouri (), Mahamitra Das (), Rangan Gupta () and David Roubaud
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Mahamitra Das: Economic Research Unit, Indian Statistical Institute, Kolkata, India

No 201812, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper contributes to the embryonic literature on the relations between Bitcoin and conventional investments by studying return and volatility spillovers between this largest cryptocurrency and four asset classes (equities, stocks, commodities, currencies, and bonds) in bear and bull market conditions. We conducted empirical analyses based on a smooth transition VAR GARCH-in-mean model covering daily data from July 19, 2010 to October 31, 2017. We found significant evidence that Bitcoin returns are related quite closely to those of most of the other assets studies, particularly commodities, and therefore, the Bitcoin market is not isolated completely. The significance and sign of the spillovers exhibited some differences in the two market conditions and in the direction of the spillovers, with greater evidence that Bitcoin receives more volatility than it transmits. Our findings have implications for investors and fund managers who are considering Bitcoin as part of their investment strategies and for policymakers concerned about the vulnerability that Bitcoin represents to the stability of the global financial system.

Keywords: Bitcoin; asset classes; return and volatility spillovers; asymmetry; smooth transition; bivariate GARCH-M (search for similar items in EconPapers)
JEL-codes: C11 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk and nep-pay
Date: 2018-02
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