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Is Bitcoin a hedge or safe-haven asset during the period of turmoil? Evidence from the currency, bond and stock markets

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  • Liu, Peng
  • Yuan, Ying

Abstract

Market turmoil, such as that induced by Covid-19, tends to create huge pressure on financial markets, forcing decision-makers and investors to analyze risks and manage their investment portfolios. Taking the market turmoil induced by Covid-19 as an example, this study addresses the question of whether Bitcoin exhibits a hedging and safe haven property during the period of turmoil. We employ the TVP-VAR approach to investigate return spillovers and interconnectedness among Bitcoin and stock, money, and bond markets. In addition, we employ three portfolio techniques, including minimum variance portfolios, minimum correlation portfolios, and minimum connectedness portfolios, to evaluate the Sharpe ratios of the portfolios as well as the cumulative return before and during the epidemic. The results demonstrate that incorporating Bitcoin decreases total connectedness across markets, and Bitcoin provides stronger hedging and safe haven capabilities. Notably, the portfolio with minimum connectedness approach reaches the highest Sharpe ratio during the pandemic.

Suggested Citation

  • Liu, Peng & Yuan, Ying, 2024. "Is Bitcoin a hedge or safe-haven asset during the period of turmoil? Evidence from the currency, bond and stock markets," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924005957
    DOI: 10.1016/j.irfa.2024.103663
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    More about this item

    Keywords

    Bitcoin; Dynamic connectedness; Safe haven; Hedging effectiveness; Portfolio management;
    All these keywords.

    JEL classification:

    • 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
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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