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Are stablecoins better safe havens or hedges against global stock markets than other assets? Comparative analysis during the COVID-19 pandemic

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  • Feng, Jingyu
  • Yuan, Ying
  • Jiang, Mingxuan

Abstract

This paper examines whether stablecoins act as diversifiers, hedges or safe havens against global stock markets during the COVID-19 pandemic, leveraging the DCC-GARCH model and dummy variable regression. In addition, we examine the dynamics of stablecoins' safe haven ability during the COVID-19 pandemic and diverse stages of the COVID-19 pandemic's development, and compare it with two traditional safe havens (gold and USD), as well as Bitcoin. Our findings reveal that both gold-pegged and USD-pegged stablecoins show a stronger hedging ability against global stock markets. In particular, USD-pegged stablecoins can be considered stable hedges and safe havens, especially during the different stages of the COVID-19 pandemic's development. Conversely, Bitcoin and traditional safe havens do not consistently provide stable hedge or safe haven properties.

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  • Feng, Jingyu & Yuan, Ying & Jiang, Mingxuan, 2024. "Are stablecoins better safe havens or hedges against global stock markets than other assets? Comparative analysis during the COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 275-301.
    • Handle: RePEc:eee:reveco:v:92:y:2024:i:c:p:275-301
    DOI: 10.1016/j.iref.2024.02.014
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    1. Victor Chung & Jenny Espinoza & Alan Mansilla, 2024. "Analysis of Financial Contagion and Prediction of Dynamic Correlations During the COVID-19 Pandemic: A Combined DCC-GARCH and Deep Learning Approach," JRFM, MDPI, vol. 17(12), pages 1-15, December.

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    More about this item

    Keywords

    Stablecoins; Cryptocurrency; Pegging mechanism; Safe haven; Hedge;
    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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