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Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

Author

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  • Imran Yousaf
  • Shoaib Ali
  • Elie Bouri
  • Tareq Saeed

Abstract

This study uses hourly data to analyse the return and volatility transmission of oil-gold and oil-Bitcoin pairs during the pre-COVID-19 and COVID-19 periods. The results show that the return transmissions vary across the two periods for both pairs. There is a unidirectional volatility spill-over from gold to oil in the pre-COVID-19 period, and from oil to gold during the COVID-19 period. There is a significant volatility spill-over from Bitcoin to oil during the pre-COVID-19 period, whereas no evidence of volatility spill-over between oil and Bitcoin is shown during the COVID-19 period. Based on optimal weights, investors should increase their investments in, (a) gold for a portfolio of oil-gold, and (b) Bitcoin for a portfolio of oil-Bitcoin during the COVID-19 period. All hedge ratios are higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. The results of hedging effectiveness reveal that the risk-adjusted returns can be improved by constructing a portfolio of oil-gold and oil-Bitcoin during both sample periods. Further results reveal that gold is a strong safe haven and a hedge for the oil market, while Bitcoin serves as a diversifier for the oil market during the COVID-19 period.

Suggested Citation

  • Imran Yousaf & Shoaib Ali & Elie Bouri & Tareq Saeed, 2022. "Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 35(1), pages 1913-1934, December.
    • Handle: RePEc:taf:reroxx:v:35:y:2022:i:1:p:1913-1934
    DOI: 10.1080/1331677X.2021.1927787
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    Citations

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    Cited by:

    1. Ustaoglu, Erkan, 2023. "Diversification, hedge, and safe-haven properties of gold and bitcoin with portfolio implications during the Russia–Ukraine war," Resources Policy, Elsevier, vol. 84(C).
    2. Khan, Muhammad Asif & Khan, Farhad & Sharif, Arshian & Suleman, Muhammad Tahir, 2023. "Dynamic linkages between Islamic equity indices, oil prices, gold prices, and news-based uncertainty: New insights from partial and multiple wavelet coherence," Resources Policy, Elsevier, vol. 80(C).
    3. Younis, Ijaz & Shah, Waheed Ullah & Yousaf, Imran, 2023. "Static and dynamic linkages between oil, gold and global equity markets in various crisis episodes: Evidence from the Wavelet TVP-VAR," Resources Policy, Elsevier, vol. 80(C).
    4. Bhatia, Madhur, 2023. "On the efficiency of the gold returns: An econometric exploration for India, USA and Brazil," Resources Policy, Elsevier, vol. 82(C).

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