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Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions

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  • Bouri, Elie
  • Gupta, Rangan
  • Tiwari, Aviral Kumar
  • Roubaud, David

Abstract

We examine whether Bitcoin can hedge global uncertainty, measured by the first principal component of the VIXs of 14 developed and developing equity markets. After decomposing Bitcoin returns into various frequencies, i.e., investment horizons, and given evidence of heavy-tails, we employ quantile regression. We reveal that Bitcoin does act as a hedge against uncertainty: it reacts positively to uncertainty at both higher quantiles and shorter frequency movements of Bitcoin returns. Further, we use quantile-on-quantile regression and identify that hedging is observed at shorter investment horizons, and at both lower and upper ends of Bitcoin returns and global uncertainty.

Suggested Citation

  • Bouri, Elie & Gupta, Rangan & Tiwari, Aviral Kumar & Roubaud, David, 2017. "Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions," Finance Research Letters, Elsevier, vol. 23(C), pages 87-95.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:87-95
    DOI: 10.1016/j.frl.2017.02.009
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    More about this item

    Keywords

    Bitcoin; Global uncertainty; Wavelet; Quantile regressions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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