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Volatility dynamics and diversification benefits of Bitcoin under asymmetric and long memory effects

Author

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  • Ahmed Jeribi
  • Mohamed Fakhfekh
  • Anis Jarboui

Abstract

The purpose lying behind this paper is twofold. In the first place, it aims at discussing the volatility dynamics of Bitcoin, gold, oil price and stock market indices in terms of goodness-of-fit to asymmetric and long-memory GARCH models. In the second place, it focuses on examining diversification benefits of Bitcoin between 19 August 2011 and 9 November 2018 using mean-variance spanning tests. It has been discovered that the most effectively fit framework turns out to be the Fractionally Integrated Exponential GARCH model (FIEGARCH), displaying the highly significant characteristic of encompassing both of the asymmetric as well as long-memory components of conditional variance. The reached findings suggest that the shock impact on Bitcoin and gold return volatilities have proven to be permanent, while its persistence on the other indices has been discovered to be transitory. Indeed, the results show that Bitcoin yields significant diversification benefits when being added to a well-diversified benchmark portfolio.

Suggested Citation

  • Ahmed Jeribi & Mohamed Fakhfekh & Anis Jarboui, 2022. "Volatility dynamics and diversification benefits of Bitcoin under asymmetric and long memory effects," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 26(1), pages 65-83.
    • Handle: RePEc:ids:gbusec:v:26:y:2022:i:1:p:65-83
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    Citations

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    Cited by:

    1. Susovon Jana & Tarak N. Sahu, 2023. "Is the cryptocurrency market a hedge against stock market risk? A Wavelet and GARCH approach," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(3), November.
    2. Rubaiyat Ahsan Bhuiyan & Afzol Husain & Changyong Zhang, 2023. "Diversification evidence of bitcoin and gold from wavelet analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-36, December.

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