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Bitcoin and global financial stress: A copula-based approach to dependence and causality in the quantiles

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  • Bouri, Elie
  • Gupta, Rangan
  • Lau, Chi Keung Marco
  • Roubaud, David
  • Wang, Shixuan

Abstract

We apply different techniques and uncover the quantile conditional dependence between the global financial stress index and Bitcoin returns from July 18, 2010, to December 29, 2017. The results from the copula-based dependence show evidence of right-tail dependence between the global financial stress index and Bitcoin returns. We focus on the conditional quantile dependence and indicate that the global financial stress index strongly Granger-causes Bitcoin returns at the left and right tail of the distribution of the Bitcoin returns, conditional on the global financial stress index. Finally, we use a bivariate cross-quantilogram approach and show only limited directional predictability from the global financial stress index to Bitcoin returns in the medium term, for which Bitcoin can act as a safe-haven against global financial stress.

Suggested Citation

  • Bouri, Elie & Gupta, Rangan & Lau, Chi Keung Marco & Roubaud, David & Wang, Shixuan, 2018. "Bitcoin and global financial stress: A copula-based approach to dependence and causality in the quantiles," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 297-307.
  • Handle: RePEc:eee:quaeco:v:69:y:2018:i:c:p:297-307
    DOI: 10.1016/j.qref.2018.04.003
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    1. repec:eee:riibaf:v:47:y:2019:i:c:p:511-518 is not listed on IDEAS
    2. repec:eee:quaeco:v:71:y:2019:i:c:p:270-279 is not listed on IDEAS
    3. Ji, Qiang & Bouri, Elie & Gupta, Rangan & Roubaud, David, 2018. "Network causality structures among Bitcoin and other financial assets: A directed acyclic graph approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 203-213.
    4. Elie Bouri & Rangan Gupta, 2019. "Predicting Bitcoin Returns: Comparing the Roles of Newspaper- and Internet Search-Based Measures of Uncertainty," Working Papers 201955, University of Pretoria, Department of Economics.
    5. Zhou, Siwen, 2018. "Exploring the Driving Forces of the Bitcoin Exchange Rate Dynamics: An EGARCH Approach," MPRA Paper 89445, University Library of Munich, Germany.
    6. Matkovskyy, Roman, 2019. "Centralized and decentralized bitcoin markets: Euro vs USD vs GBP," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 270-279.
    7. repec:eee:finlet:v:28:y:2019:i:c:p:160-164 is not listed on IDEAS

    More about this item

    Keywords

    Bitcoin; Global financial stress index; Dependence; Copula; Quantiles;

    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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