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Network Causality Structures among Bitcoin and other Financial Assets: A Directed Acyclic Graph Approach

Author

Listed:
  • Qiang Ji

    (Center for Energy and Environmental Policy Research, Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China and School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China.)

  • Elie Bouri

    (USEK Business School, Holy Spirit University of Kaslik, Jounieh, Lebanon.)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • David Roubaud

    (Montpellier Research in Management, Montpellier Business School, Montpellier, France.)

Abstract

Unlike prior studies that have mostly relied on ad hoc network structures, we use a data-driven methodology, namely the directed acyclic graph (DAG), to uncover the contemporaneous and lagged causal relations among Bitcoin and a set of financial assets. The DAG methodology allows the identification of networks of causality based on the observed correlations and partial correlations approach, without making a priori causal assumptions. The main results indicate that the Bitcoin market is quite isolated, especially during its bull market state. We also conduct forecast error variance decompositions and show that the influence of different financial assets on Bitcoin up to the 20-day horizon does not account for more than 10% of innovations in all cases.

Suggested Citation

  • Qiang Ji & Elie Bouri & Rangan Gupta & David Roubaud, 2017. "Network Causality Structures among Bitcoin and other Financial Assets: A Directed Acyclic Graph Approach," Working Papers 201729, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201729
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    More about this item

    Keywords

    Bitcoin; financial assets; integration; causality; directed acyclic graph;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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    This paper has been announced in the following NEP Reports:

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