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Can Bitcoin hedge Belt and Road equity markets?

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  • Sha, Yezhou
  • Song, Weijia

Abstract

We use the Belt and Road Initiative (BRI) economies to assess whether co-movements between individual BRI countries’ equity markets and Bitcoin, can optimize portfolio composition. The dynamic correlations between these two asset classes persist up to 21 days out-of-sample. During the Covid-19 pandemic, a simple hedging strategy could have improved high risk-averse investors’ utility, while still yielding positive returns after controlling for transaction costs. The distribution of hedge ratios and portfolio performance of a Bitcoin-BRI country hedged portfolio flattens after the country joins the BRI, indicating further research is needed to identify the underlying mechanism at work.

Suggested Citation

  • Sha, Yezhou & Song, Weijia, 2021. "Can Bitcoin hedge Belt and Road equity markets?," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612321002105
    DOI: 10.1016/j.frl.2021.102129
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    References listed on IDEAS

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    Cited by:

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    2. Fang, Ming & Chang, Chiu-Lan & Zhang, Qi, 2023. "Impacts of trading restrictions on price volatilities and speculative activities: Evidence from CSI 300 futures," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 184-204.
    3. Baur, Dirk G. & Hoang, Lai T. & Hossain, Md Zakir, 2022. "Is Bitcoin a hedge? How extreme volatility can destroy the hedge property," Finance Research Letters, Elsevier, vol. 47(PB).

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    More about this item

    Keywords

    DCC–GARCH; Bitcoin; Belt and Road Initiative; Hedging; Portfolio analysis;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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