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Hedging Bitcoin with commodity futures: An analysis with copper, gas, gold, and crude oil futures

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  • Joo, Young C.
  • Park, Sung Y.

Abstract

There is increased interest in the dynamic relationships between cryptocurrency and commodity futures. This study examines the hedging performance of four well-known commodity futures against fluctuations in Bitcoin prices. Furthermore, this study used the DCC- and ADCC-MGARCH models to estimate conditional correlations and time-varying optimal hedge ratios between the returns of copper, gas, gold, and crude oil futures, and Bitcoin. We use a rolling window method to calculate one-step-ahead time-varying optimal hedge ratios and evaluate hedging performance. The empirical results show that gas and gold have hedge benefits to Bitcoin. However, crude oil shows poor hedge performance. From the results of one-step-ahead hedge ratios, for copper and oil, we find that hedge ratios increased and hedge effectiveness improved since the COVID-19 outbreak.

Suggested Citation

  • Joo, Young C. & Park, Sung Y., 2024. "Hedging Bitcoin with commodity futures: An analysis with copper, gas, gold, and crude oil futures," The North American Journal of Economics and Finance, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:ecofin:v:72:y:2024:i:c:s1062940824000524
    DOI: 10.1016/j.najef.2024.102127
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    More about this item

    Keywords

    DCC-GARCH; ADCC-GARCH; Hedging; Commodity futures; Cryptocurrency;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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