STOCK RETURNS-BITCOIN NEXUS: EVIDENCE FROM PRE AND DURING COVID-19 OUTBREAK
DOI:
https://doi.org/10.24191/VoA.v18i2.11715Abstract
The extant literature showed that interaction between cryptocurrency and stock markets was not comprehensively supported during the COVID-19 pandemic. This study aims to examine the relationship of bitcoin and international stock markets to evaluate how the role of cryptocurrency has changed over the COVID-19 period. Using the daily data of 12 international stock markets from the advanced economies and emerging economies, the study showed that cryptocurrency as measured by the price dynamics of bitcoin had more interactions with the international stock markets during the onset of COVID-19. Bitcoin was a hedge asset for the Japan stock market prior to COVID-19. In the period of COVID-19, bitcoin has important portfolio diversification implications for seven international stock market indices, i.e., US, UK, France, Germany, Thailand, India and Turkey, but it is neither a hedge asset nor safe haven for the remainder of the markets in advanced economies and emerging economies. The study further revealed that negative shocks have a larger effect on the conditional volatility of the stock than positive shocks in the observed samples and confirmed the existence of the asymmetric effect on the international stock markets during the pandemic COVID-19 period. This study contributes to complement the existing body of knowledge on the bitcoin and stock markets nexus pre and during the COVID-19 period.
References
Akhtaruzzaman, M., Sensoy, A., & Corbet, S. (2020). The influence of bitcoin on portfolio diversification and design. Finance Research Letters, 37, 101344. https://doi.org/10.1016/j.frl.2019.101344
Akyildirim, E., Corbet, S., Lucey, B., Sensoy, A., & Yarovaya, L. (2020). The relationship between implied volatility and cryptocurrency returns. Finance Research Letters, 33, 101212. https://doi.org/10.1016/j.frl.2019.06.010
Ali, M., Alam, N., & Rizvi, S. A. R. (2020). Coronavirus (COVID-19)—An epidemic or pandemic for financial markets. Journal of Behavioral and Experimental Finance, 27, 100341. https://doi.org/10.1016/j.jbef.2020.100341
Bariviera, A. F., Basgall, M. J., Hasperué, W., & Naiouf, M. (2017). Some stylized facts of the Bitcoin market. Physica A: Statistical Mechanics and its Applications, 484, 82-90. https://doi.org/10.1016/j.physa.2017.04.159
Baur, D. G., & Lucey, B. M. (2010). Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review, 45(2), 217-229. https://doi.org/10.1111/j.1540-6288.2010.00244.x
Bouri, E., Das, M., Gupta, R., & Roubaud, D. (2018). Spillovers between Bitcoin and other assets during bear and bull markets. Applied Economics, 50(55), 5935-5949. https://doi.org/10.1080/00036846.2018.1488075
Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20, 192-198. https://doi.org/10.1016/j.frl.2016.09.025
Chan, W. H., Le, M., & Wu, Y. W. (2019). Holding Bitcoin longer: The dynamic hedging abilities of Bitcoin. The Quarterly Review of Economics and Finance, 71, 107-113. https://doi.org/10.1016/j.qref.2018.07.004
Conlon, T., & McGee, R. J. (2020). Betting on Bitcoin: Does gambling volume on the blockchain explain Bitcoin price changes? Economics Letters, 191, 108727. https://doi.org/10.1016/j.econlet.2019.108727
Corbet, S., Larkin, C., & Lucey, B. (2020). The contagion effects of the COVID-19 pandemic: Evidence from gold and cryptocurrencies. Finance Research Letters, 35, 101554. https://doi.org/10.2139/ssrn.3564443
Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the dynamic relationships between cryptocurrencies and other financial assets. Economics Letters, 165, 28-34. https://doi.org/10.1016/j.econlet.2018.01.004
Cox, J., Greenwald, D. L., & Ludvigson, S. C. (2020). What Explains the COVID-19 Stock Market? (No. w27784). National Bureau of Economic Research. https://doi.org/10.3386/w27784
Engle, R. F., & Bollerslev, T. (1986). Modelling the persistence of conditional variances. Econometric Reviews, 5(1), 1-50. https://doi.org/10.1080/07474938608800095
Ghorbel, A., & Jeribi, A. (2021). Investigating the relationship between volatilities of cryptocurrencies and other financial assets. Decisions in Economics and Finance, 1-27. https://doi.org/10.1007/s10203-020-00312-9
Glaser, F., Zimmermann, K., Haferkorn, M., Weber, M. C., & Siering, M. (2014). Bitcoin-asset or currency? Revealing users' hidden intentions. Revealing Users' Hidden Intentions (April 15, 2014). ECIS.
Gil-Alana, L. A., Abakah, E. J. A., & Rojo, M. F. R. (2020). Cryptocurrencies and stock market indices. Are they related? Research in International Business and Finance, 51, 101063. https://doi.org/10.1016/j.ribaf.2019.101063
Isah, K. O., & Raheem, I. D. (2019). The hidden predictive power of cryptocurrencies and QE: Evidence from US stock market. Physica A: Statistical Mechanics and its Applications, 536, 121032. https://doi.org/10.1016/j.physa.2019.04.268
Jana, R. K., & Das, D. (2020). Did Bitcoin act as an antidote to the Chinese equity market and booster to Altcoins during the Novel Coronavirus outbreak? Available at SSRN 3544794. https://doi.org/10.2139/ssrn.3544794
Jeribi, A., & Manzli, Y. S. (2021). Can cryptocurrencies be a safe haven during the novel COVID-19 pandemic? Evidence from the Tunisian Stock Market. Journal of Research in Emerging Markets, 3(1), 14-31. https://doi.org/10.30585/jrems.v3i1.555
Kang, S. H., McIver, R. P., & Hernandez, J. A. (2019). Co-movements between Bitcoin and Gold: A wavelet coherence analysis. Physica A: Statistical Mechanics and its Applications, 536, 120888. https://doi.org/10.1016/j.physa.2019.04.124
Katsiampa, P. (2017). Volatility estimation for Bitcoin: A comparison of GARCH models. Economics Letters, 158, 3-6.
Kurka, J. (2019). Do cryptocurrencies and traditional asset classes influence each other? Finance Research Letters, 31, 38-46. https://doi.org/10.1016/j.frl.2019.04.018
Lahiani, A., & Jlassi, N. B. (2021). Nonlinear tail dependence in cryptocurrency-stock market returns: The role of Bitcoin futures. Research in International Business and Finance, 56, 101351.
Liu, W. (2019). Portfolio diversification across cryptocurrencies. Finance Research Letters, 29, 200-205. https://doi.org/10.1016/j.frl.2018.07.010
Mazur, M., Dang, M., & Vega, M. (2021). COVID-19 and the march 2020 stock market crash. Evidence from S&P1500. Finance Research Letters, 38, 101690. https://doi.org/10.1016/j.frl.2020.101690
Mariana, C. D., Ekaputra, I. A., & Husodo, Z. A. (2021). Are Bitcoin and Ethereum safe-havens for stocks during the COVID-19 pandemic? Finance research letters, 38, 101798. https://doi.org/10.1016/j.frl.2020.101798
Nelson, D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica: Journal of the Econometric Society, 347-370. https://doi.org/10.2307/2938260
Smales, L. A. (2019). Bitcoin as a safe haven: Is it even worth considering? Finance Research Letters, 30, 385-393. https://doi.org/10.1016/j.frl.2018.11.002
Tiwari, A. K., Raheem, I. D., & Kang, S. H. (2019). Time-varying dynamic conditional correlation between stock and cryptocurrency markets using the copula-ADCC-EGARCH model. Physica A: Statistical Mechanics and its Applications, 535, 122295. https://doi.org/10.1016/j.physa.2019.122295
Triple A (2021). Global crypto adoption. https://triple-a.io/crypto-ownership/
Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36, 101528. https://doi.org/10.1016/j.frl.2020.101528
Zhang, W., Wang, P., Li, X., & Shen, D. (2018). The inefficiency of cryptocurrency and its cross-correlation with Dow Jones Industrial Average. Physica A: Statistical Mechanics and its Applications, 510, 658-670. https://doi.org/10.1016/j.physa.2018.07.032
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
