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Cryptocurrency, Gold, and Stock Exchange Market Performance Correlation: Empirical Evidence

Author

Listed:
  • Kanellos Toudas

    (Department of Agricultural Business Administration & Supply Systems Management, Agricultural University of Athens, 118 55 Athens, Greece)

  • Démétrios Pafos

    (School of Social Sciences, Hellenic Open University, 263 35 Patras, Greece)

  • Paraskevi Boufounou

    (Department of Economics, National and Kapodistrian University of Athens, 106 79 Athens, Greece)

  • Athanasios Raptis

    (National School of Public Administration, Piraeus 211 Ave, 177 78 Athens, Greece)

Abstract

This paper examines the correlation between three prospective investing options: the Bitcoin cryptocurrency price, gold, and the Dow Jones stock index. The main research question is whether there is a causal effect of gold and the DWJ on Bitcoin and how this effect varies on time. The study begins with a background analysis that explains the definitions and operation of cryptocurrencies, followed by a brief overview of gold and its derivatives. In addition, a historical review of stock markets is provided, with a focus on the Dow Jones index. Then, a literature review follows. Daily data from three separate periods are used, each spanning four years. The first period, running from October 2014 to September 2018, provides an overview of the introduction of official cryptocurrency price data. The second period, running from Oct 2018 to Sept 2022, captures more recent trends preceding COVID-19. The third period, from January 2020 to December 2023, is the whole COVID-19 period with the initiation, embedded, and terminal phases. Classical inductive statistical methods (descriptive, correlations, multiple linear regression) as well as time series analysis methods (autocorrelation, cross-correlation, Granger causality tests, and ARIMA modeling) are used to analyze the data. Rigorous testing for autocorrelation, multicollinearity, and homoskedasticity is performed on the estimated models. The results show a correlation of Bitcoin with gold and the DWJ. This correlation varies over time, as in the first period the correlation mainly concerns the DWJ and in the second it mainly concerns gold. By using ARIMA models, it was possible to make a forecast in a time horizon of a few days. In addition, the structure of the forecasting mechanism of gold and DWJ on Bitcoin seems to have changed during the COVID-19 crisis. The findings suggest that future research should encompass a broader dataset, facilitating comprehensive comparisons and enhancing the reliability of the conclusions drawn.

Suggested Citation

  • Kanellos Toudas & Démétrios Pafos & Paraskevi Boufounou & Athanasios Raptis, 2024. "Cryptocurrency, Gold, and Stock Exchange Market Performance Correlation: Empirical Evidence," FinTech, MDPI, vol. 3(2), pages 1-13, June.
    • Handle: RePEc:gam:jfinte:v:3:y:2024:i:2:p:18-336:d:1416794
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    References listed on IDEAS

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    4. Shafi Madhkar Alsubaie & Khaled H. Mahmoud & Ahmed Bossman & Emmanuel Asafo-Adjei & Stefan Cristian Gherghina, 2022. "Vulnerability of Sustainable Islamic Stock Returns to Implied Market Volatilities: An Asymmetric Approach," Discrete Dynamics in Nature and Society, Hindawi, vol. 2022, pages 1-22, July.
    5. Jia, Zhenzhen & Tiwari, Sunil & Zhou, Jianhua & Farooq, Muhammad Umar & Fareed, Zeeshan, 2023. "Asymmetric nexus between Bitcoin, gold resources and stock market returns: Novel findings from quantile estimates," Resources Policy, Elsevier, vol. 81(C).
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