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Hedging capabilities of bitcoin. Is it the virtual gold?

Author

Listed:
  • Dyhrberg, Anne Haubo

Abstract

This paper sets out to explore the hedging capabilities of bitcoin by applying the asymmetric GARCH methodology used in investigation of gold. The results show that bitcoin can clearly be used as a hedge against stocks in the Financial Times Stock Exchange Index. Additionally bitcoin can be used as a hedge against the American dollar in the short-term. Bitcoin thereby possess some of the same hedging abilities as gold and can be included in the variety of tools available to market analysts to hedge market specific risk.

Suggested Citation

  • Dyhrberg, Anne Haubo, 2016. "Hedging capabilities of bitcoin. Is it the virtual gold?," Finance Research Letters, Elsevier, vol. 16(C), pages 139-144.
  • Handle: RePEc:eee:finlet:v:16:y:2016:i:c:p:139-144
    DOI: 10.1016/j.frl.2015.10.025
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    References listed on IDEAS

    as
    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Marie Briere & Kim Oosterlinck & Ariane Szafarz, 2013. "Virtual Currency, Tangible Return: Portfolio Diversification with Bitcoin," Working Papers CEB 13-031, ULB -- Universite Libre de Bruxelles.
    3. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    4. Capie, Forrest & Mills, Terence C. & Wood, Geoffrey, 2005. "Gold as a hedge against the dollar," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(4), pages 343-352, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Elie Bouri & Rangan Gupta & Chi Keung Marco Lau & David Roubaud & Shixuan Wang, 2017. "Bitcoin and Global Financial Stress: A Copula-Based Approach to Dependence and Causality-in-Quantiles," Working Papers 201750, University of Pretoria, Department of Economics.
    2. Jamal Bouoiyour & Refk Selmi, 2017. "Are Trump and Bitcoin Good Partners?," Papers 1703.00308, arXiv.org.
    3. Jamal Bouoiyour & Refk Selmi, 2017. "Ether: Bitcoin's competitor or ally?," Working Papers hal-01567277, HAL.
    4. Sovbetov, Yhlas, 2018. "Factors Influencing Cryptocurrency Prices: Evidence from Bitcoin, Ethereum, Dash, Litcoin, and Monero," MPRA Paper 85036, University Library of Munich, Germany.
    5. repec:eee:ecolet:v:158:y:2017:i:c:p:3-6 is not listed on IDEAS
    6. 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.
    7. Elie Bouri & Mahamitra Das & Rangan Gupta & David Roubaud, 2018. "Spillovers between Bitcoin and other Assets during Bear and Bull Markets," Working Papers 201812, University of Pretoria, Department of Economics.
    8. Jamal Bouoiyour & Refk Selmi, 2017. "The Bitcoin price formation: Beyond the fundamental sources," Papers 1707.01284, arXiv.org.
    9. Marius Cristian Frunza & Dominique Guégan, 2018. "Is the Bitcoin Rush Over?," Working Papers 2018:10, Department of Economics, University of Venice "Ca' Foscari".
    10. repec:eee:ecolet:v:167:y:2018:i:c:p:18-25 is not listed on IDEAS
    11. Elie Bouri & Rangan Gupta & Amine Lahiani & Muhammad Shahbaz, 2017. "Testing for Asymmetric Nonlinear Short- and Long-Run Relationships between Bitcoin, Aggregate Commodity and Gold Prices," Working Papers 201760, University of Pretoria, Department of Economics.
    12. repec:agr:journl:v:4(613):y:2017:i:4(613):p:53-64 is not listed on IDEAS
    13. repec:eee:finlet:v:23:y:2017:i:c:p:87-95 is not listed on IDEAS
    14. Śmiech, Sławomir & Papież, Monika, 2017. "In search of hedges and safe havens: Revisiting the relations between gold and oil in the rolling regression framework," Finance Research Letters, Elsevier, vol. 20(C), pages 238-244.
    15. Tetsuya Takaishi, 2017. "Statistical properties and multifractality of Bitcoin," Papers 1707.07618, arXiv.org, revised May 2018.
    16. repec:ibn:ibrjnl:v:10:y:2017:i:11:p:79-87 is not listed on IDEAS
    17. 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.
    18. repec:eee:ecolet:v:165:y:2018:i:c:p:28-34 is not listed on IDEAS
    19. Urquhart, Andrew, 2016. "The inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 148(C), pages 80-82.
    20. Stjepan Beguv{s}i'c & Zvonko Kostanjv{c}ar & H. Eugene Stanley & Boris Podobnik, 2018. "Scaling properties of extreme price fluctuations in Bitcoin markets," Papers 1803.08405, arXiv.org.
    21. Lim, Siok Jin & Masih, Mansur, 2017. "Exploring portfolio diversification opportunities in Islamic capital markets through bitcoin: evidence from MGARCH-DCC and Wavelet approaches," MPRA Paper 79752, University Library of Munich, Germany.
    22. repec:gam:jjrfmx:v:10:y:2017:i:4:p:17-:d:113895 is not listed on IDEAS

    More about this item

    Keywords

    Bitcoin; Risk management; Gold; Hedging;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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