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Holding Bitcoin longer: The dynamic hedging abilities of Bitcoin

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  • Chan, Wing Hong
  • Le, Minh
  • Wu, Yan Wendy

Abstract

This paper investigates whether Bitcoin can hedge and diversify risk against the Euro STOXX, Nikkei, Shanghai A-Share, S&P 500, and the TSX Index, and examines the dynamics of these abilities over different data frequencies. Pairwise GARCH models and constant conditional correlation models are used for daily, weekly, and monthly returns from October 2010 to October 2017. We find that Bitcoin is an effective strong hedge for all these indices under monthly data frequency. However, daily and weekly returns do not demonstrate strong hedge properties. Further frequency dependence model tests reveal that Bitcoin returns are strong hedgings against S&P and Euro indices over medium data frequency, and also against the Shanghai A-Share over low data frequency.

Suggested Citation

  • Chan, Wing Hong & Le, Minh & Wu, Yan Wendy, 2019. "Holding Bitcoin longer: The dynamic hedging abilities of Bitcoin," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 107-113.
    • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:107-113
    DOI: 10.1016/j.qref.2018.07.004
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Hedge; Risk management; Cryptocurrency; Frequency; Dependent; Frequency decomposition;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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