Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies
This study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional ass...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-10-01
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| Series: | Entropy |
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| Online Access: | https://www.mdpi.com/1099-4300/24/11/1565 |
| _version_ | 1797468382631559168 |
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| author | Panpan Wang Xiaoxing Liu Sixu Wu |
| author_facet | Panpan Wang Xiaoxing Liu Sixu Wu |
| author_sort | Panpan Wang |
| collection | DOAJ |
| description | This study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional assets are further examined. The results show that, first, bitcoin is positively linked to risk assets, including stock, bond and commodity, and negatively linked to the U.S. dollar, which is a safe-haven asset, so bitcoin is closer in nature to a risk asset than a safe-haven asset. Second, the high short-term volatility and speculative nature of the bitcoin market makes its long-term correlation with other assets stronger than the short-term. Third, the positive linkage between the prices of bitcoin and risk assets increases sharply under extreme shocks (e.g., the outbreak of COVID-19 in early 2020). Fourth, bitcoin can hedge against the U.S. dollar, and in the long term, bitcoin can hedge against the Chinese stock market and act as a safe haven for the U.S. stock market and crude oil. However, for most other traditional assets, bitcoin is only an effective diversifier. |
| first_indexed | 2024-03-09T19:05:41Z |
| format | Article |
| id | doaj.art-9fb240dbedfe4a57906d74a1d07e6df1 |
| institution | Directory Open Access Journal |
| issn | 1099-4300 |
| language | English |
| last_indexed | 2024-03-09T19:05:41Z |
| publishDate | 2022-10-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Entropy |
| spelling | doaj.art-9fb240dbedfe4a57906d74a1d07e6df12023-11-24T04:36:20ZengMDPI AGEntropy1099-43002022-10-012411156510.3390/e24111565Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time FrequenciesPanpan Wang0Xiaoxing Liu1Sixu Wu2School of Economics and Management, Southeast University, Nanjing 211189, ChinaSchool of Economics and Management, Southeast University, Nanjing 211189, ChinaSchool of Urban and Regional Science, East China Normal University, Shanghai 200241, ChinaThis study employs the ADCC-GARCH approach to investigate the dynamic correlation between bitcoin and 14 major financial assets in different time-frequency dimensions over the period 2013–2021, for which the risk diversification, hedging and safe-haven properties of bitcoin for those traditional assets are further examined. The results show that, first, bitcoin is positively linked to risk assets, including stock, bond and commodity, and negatively linked to the U.S. dollar, which is a safe-haven asset, so bitcoin is closer in nature to a risk asset than a safe-haven asset. Second, the high short-term volatility and speculative nature of the bitcoin market makes its long-term correlation with other assets stronger than the short-term. Third, the positive linkage between the prices of bitcoin and risk assets increases sharply under extreme shocks (e.g., the outbreak of COVID-19 in early 2020). Fourth, bitcoin can hedge against the U.S. dollar, and in the long term, bitcoin can hedge against the Chinese stock market and act as a safe haven for the U.S. stock market and crude oil. However, for most other traditional assets, bitcoin is only an effective diversifier.https://www.mdpi.com/1099-4300/24/11/1565bitcoinADCC-GARCHdiversifierhedgesafe haven |
| spellingShingle | Panpan Wang Xiaoxing Liu Sixu Wu Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies Entropy bitcoin ADCC-GARCH diversifier hedge safe haven |
| title | Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies |
| title_full | Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies |
| title_fullStr | Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies |
| title_full_unstemmed | Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies |
| title_short | Dynamic Linkage between Bitcoin and Traditional Financial Assets: A Comparative Analysis of Different Time Frequencies |
| title_sort | dynamic linkage between bitcoin and traditional financial assets a comparative analysis of different time frequencies |
| topic | bitcoin ADCC-GARCH diversifier hedge safe haven |
| url | https://www.mdpi.com/1099-4300/24/11/1565 |
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