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On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier?

Author

Listed:
  • Elie Bouri

    (USEK - Université Saint-Esprit de Kaslik)

  • Peter Molnár

    (NTNU - Norwegian University of Science and Technology [Trondheim])

  • Georges Azzi

    (USEK - Université Saint-Esprit de Kaslik)

  • David Roubaud

    (MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UM3 - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School - UM - Université de Montpellier)

  • Lars Ivar Hagfors

    (NTNU - Norwegian University of Science and Technology [Trondheim])

Abstract

This paper uses a dynamic conditional correlation model to examine whether Bitcoin can act as a hedge and safe haven for major world stock indices, bonds, oil, gold, the general commodity index and the US dollar index. Daily and weekly data span from July 2011 to December 2015. Overall, the empirical results indicate that Bitcoin is a poor hedge and is suitable for diversification purposes only. However, Bitcoin can only serve as a strong safe haven against weekly extreme down movements in Asian stocks. We also show that Bitcoin hedging and safe haven properties vary between horizons.

Suggested Citation

  • Elie Bouri & Peter Molnár & Georges Azzi & David Roubaud & Lars Ivar Hagfors, 2017. "On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier?," Post-Print hal-02000697, HAL.
  • Handle: RePEc:hal:journl:hal-02000697
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02000697
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    References listed on IDEAS

    as
    1. Dirk G. Baur & Brian M. Lucey, 2010. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Financial Review, Eastern Finance Association, vol. 45(2), pages 217-229, May.
    2. Pavel Ciaian & Miroslava Rajcaniova & d’Artis Kancs, 2016. "The economics of BitCoin price formation," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1799-1815, April.
    3. Ratner, Mitchell & Chiu, Chih-Chieh (Jason), 2013. "Hedging stock sector risk with credit default swaps," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 18-25.
    4. Dwyer, Gerald P., 2015. "The economics of Bitcoin and similar private digital currencies," Journal of Financial Stability, Elsevier, vol. 17(C), pages 81-91.
    5. Anne Haubo Dyhrberg, 2015. "Hedging Capabilities of Bitcoin. Is it the virtual gold?," Working Papers 201521, School of Economics, University College Dublin.
    6. repec:agr:journl:v:1(590):y:2014:i:1(590):p:103-114 is not listed on IDEAS
    7. Anne Haubo Dyhrberg, 2015. "Bitcoin, Gold and the Dollar – a GARCH Volatility Analysis," Working Papers 201520, School of Economics, University College Dublin.
    8. Hafner, Christian M. & Reznikova, Olga, 2012. "On the estimation of dynamic conditional correlation models," Computational Statistics & Data Analysis, Elsevier, vol. 56(11), pages 3533-3545.
    9. Brandvold, Morten & Molnár, Peter & Vagstad, Kristian & Andreas Valstad, Ole Christian, 2015. "Price discovery on Bitcoin exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 18-35.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bitcoin; Cryptocurrency; DCC; Diversifier; Hedge; Safe haven;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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