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Trade uncertainties and the hedging abilities of Bitcoin

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  • Elie Bouri
  • Konstantinos Gkillas
  • Rangan Gupta

Abstract

In this paper, we first estimate the monthly realised correlation, based on daily data, between stock returns of the United States (US) and Bitcoin returns. Then, we relate the realised correlation over the period October 2011 to May 2019 with a news‐based measure of the growth of trade uncertainty of the US. Our results show that the realised correlation is negatively impacted by increases in trade uncertainty, which continues to hold under alternative robustness checks, suggesting that Bitcoin can act as a hedge relative to the conventional stock market in the wake of heightened trade policy‐related uncertainties, and provide diversification benefits for investors.

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  • Elie Bouri & Konstantinos Gkillas & Rangan Gupta, 2020. "Trade uncertainties and the hedging abilities of Bitcoin," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(3), September.
  • Handle: RePEc:bla:ecnote:v:49:y:2020:i:3:n:e12173
    DOI: 10.1111/ecno.12173
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    Cited by:

    1. Syed Jawad Hussain Shahzad & Elie Bouri & Sang Hoon Kang & Tareq Saeed, 2021. "Regime specific spillover across cryptocurrencies and the role of COVID-19," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-24, December.
    2. Bruno Ferreira Frascaroli, 2020. "Bitcoin's innovative aspects, return volatility and uncertainty shocks," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 7(3), pages 224-245.
    3. Gkillas, Konstantinos & Bouri, Elie & Gupta, Rangan & Roubaud, David, 2022. "Spillovers in Higher-Order Moments of Crude Oil, Gold, and Bitcoin," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 398-406.
    4. Wang, Peijin & Zhang, Hongwei & Yang, Cai & Guo, Yaoqi, 2021. "Time and frequency dynamics of connectedness and hedging performance in global stock markets: Bitcoin versus conventional hedges," Research in International Business and Finance, Elsevier, vol. 58(C).
    5. Elie Bouri & Rangan Gupta & Chi keung marco Lau & David Roubaud, 2021. "Risk aversion and Bitcoin returns in extreme quantiles," Economics Bulletin, AccessEcon, vol. 41(3), pages 1374-1386.
    6. Khalid Khan & Jiluo Sun & Sinem Derindere Koseoglu & Ashfaq U. Rehman, 2021. "Revisiting Bitcoin Price Behavior Under Global Economic Uncertainty," SAGE Open, , vol. 11(3), pages 21582440211, August.
    7. Elie Bouri & Konstantinos Gkillas & Rangan Gupta & Christian Pierdzioch, 2021. "Forecasting Realized Volatility of Bitcoin: The Role of the Trade War," Computational Economics, Springer;Society for Computational Economics, vol. 57(1), pages 29-53, January.
    8. Ma, Chaoqun & Tian, Yonggang & Hsiao, Shisong & Deng, Liurui, 2022. "Monetary policy shocks and Bitcoin prices," Research in International Business and Finance, Elsevier, vol. 62(C).
    9. Caferra, Rocco, 2020. "Good vibes only: The crypto-optimistic behavior," Journal of Behavioral and Experimental Finance, Elsevier, vol. 28(C).
    10. Khaled Mokni & Elie Bouri & Ahdi Noomen Ajmi & Xuan Vinh Vo, 2021. "Does Bitcoin Hedge Categorical Economic Uncertainty? A Quantile Analysis," SAGE Open, , vol. 11(2), pages 21582440211, May.
    11. Umar, Muhammad & Su, Chi-Wei & Rizvi, Syed Kumail Abbas & Shao, Xue-Feng, 2021. "Bitcoin: A safe haven asset and a winner amid political and economic uncertainties in the US?," Technological Forecasting and Social Change, Elsevier, vol. 167(C).
    12. Shahzad, Syed Jawad Hussain & Bouri, Elie & Ahmad, Tanveer & Naeem, Muhammad Abubakr & Vo, Xuan Vinh, 2021. "The pricing of bad contagion in cryptocurrencies: A four-factor pricing model," Finance Research Letters, Elsevier, vol. 41(C).
    13. Dimitrios Koutmos & Timothy King & Constantin Zopounidis, 2021. "Hedging uncertainty with cryptocurrencies: Is bitcoin your best bet?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(4), pages 815-837, December.
    14. Konstantinos Gkillas & Christoforos Konstantatos & Costas Siriopoulos, 2021. "Uncertainty Due to Infectious Diseases and Stock–Bond Correlation," Econometrics, MDPI, vol. 9(2), pages 1-18, April.
    15. Mokni, Khaled & Ajmi, Ahdi Noomen & Bouri, Elie & Vo, Xuan Vinh, 2020. "Economic policy uncertainty and the Bitcoin-US stock nexus," Journal of Multinational Financial Management, Elsevier, vol. 57.
    16. Inzamam Ul Haq & Apichit Maneengam & Supat Chupradit & Wanich Suksatan & Chunhui Huo, 2021. "Economic Policy Uncertainty and Cryptocurrency Market as a Risk Management Avenue: A Systematic Review," Risks, MDPI, vol. 9(9), pages 1-24, September.
    17. Vasilios Plakandaras & Elie Bouri & Rangan Gupta, 2019. "Forecasting Bitcoin Returns: Is there a Role for the U.S. – China Trade War?," Working Papers 201980, University of Pretoria, Department of Economics.

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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