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Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies

This study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional ass...

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Detalles Bibliográficos
Autores principales: Wang, Panpan, Liu, Xiaoxing, Wu, Sixu
Formato: Online Artículo Texto
Lenguaje:English
Publicado: MDPI 2022
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9689522/
https://www.ncbi.nlm.nih.gov/pubmed/36359656
http://dx.doi.org/10.3390/e24111565
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author Wang, Panpan
Liu, Xiaoxing
Wu, Sixu
author_facet Wang, Panpan
Liu, Xiaoxing
Wu, Sixu
author_sort Wang, Panpan
collection PubMed
description This study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional assets are further examined. The results show that, first, bitcoin is positively linked to risk assets, including stock, bond and commodity, and negatively linked to the U.S. dollar, which is a safe-haven asset, so bitcoin is closer in nature to a risk asset than a safe-haven asset. Second, the high short-term volatility and speculative nature of the bitcoin market makes its long-term correlation with other assets stronger than the short-term. Third, the positive linkage between the prices of bitcoin and risk assets increases sharply under extreme shocks (e.g., the outbreak of COVID-19 in early 2020). Fourth, bitcoin can hedge against the U.S. dollar, and in the long term, bitcoin can hedge against the Chinese stock market and act as a safe haven for the U.S. stock market and crude oil. However, for most other traditional assets, bitcoin is only an effective diversifier.
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spelling pubmed-96895222022-11-25 Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies Wang, Panpan Liu, Xiaoxing Wu, Sixu Entropy (Basel) Article This study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional assets are further examined. The results show that, first, bitcoin is positively linked to risk assets, including stock, bond and commodity, and negatively linked to the U.S. dollar, which is a safe-haven asset, so bitcoin is closer in nature to a risk asset than a safe-haven asset. Second, the high short-term volatility and speculative nature of the bitcoin market makes its long-term correlation with other assets stronger than the short-term. Third, the positive linkage between the prices of bitcoin and risk assets increases sharply under extreme shocks (e.g., the outbreak of COVID-19 in early 2020). Fourth, bitcoin can hedge against the U.S. dollar, and in the long term, bitcoin can hedge against the Chinese stock market and act as a safe haven for the U.S. stock market and crude oil. However, for most other traditional assets, bitcoin is only an effective diversifier. MDPI 2022-10-30 /pmc/articles/PMC9689522/ /pubmed/36359656 http://dx.doi.org/10.3390/e24111565 Text en © 2022 by the authors. https://creativecommons.org/licenses/by/4.0/Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
spellingShingle Article
Wang, Panpan
Liu, Xiaoxing
Wu, Sixu
Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title_full Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title_fullStr Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title_full_unstemmed Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title_short Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
title_sort dynamic linkage between bitcoin and traditional financial assets: a comparative analysis of different time frequencies
topic Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9689522/
https://www.ncbi.nlm.nih.gov/pubmed/36359656
http://dx.doi.org/10.3390/e24111565
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