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“Digital Gold” and geopolitics

Author

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  • Selmi, Refk
  • Bouoiyour, Jamal
  • Wohar, Mark E.

Abstract

There is a growing empirical literature on Bitcoin and gold safe haven properties with respect to financial risks and macroeconomic news but very scarce literature regarding geopolitical risks. This paper provides a fresh insight into the Bitcoin safe haven status, in comparison to gold. We, first, propose a geopolitical risk composite indicator based on various sources of geopolitical risks. A Principal Component Analysis is conducted to group the information on these indicators. Second, a dynamic Markov-switching copula model (which accommodates a dynamic link between the developed geopolitical risk index and Bitcoin and gold price dynamics within low and high risk regimes) is used. We show that both Bitcoin and gold respond positively to the composite geopolitical risk indicator when risk is high. This underscores that both Bitcoin and gold have the ability to act as safe havens for assets whose valuations plummet during times of violent geopolitical conflicts. But such properties seem to be conditional upon different categories of geopolitical risks.

Suggested Citation

  • Selmi, Refk & Bouoiyour, Jamal & Wohar, Mark E., 2022. "“Digital Gold” and geopolitics," Research in International Business and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001331
    DOI: 10.1016/j.ribaf.2021.101512
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    Cited by:

    1. Cheng, Sheng & Zhang, Zongyou & Cao, Yan, 2022. "Can precious metals hedge geopolitical risk? Fresh sight using wavelet coherence analysis," Resources Policy, Elsevier, vol. 79(C).
    2. Long, Huaigang & Demir, Ender & Będowska-Sójka, Barbara & Zaremba, Adam & Shahzad, Syed Jawad Hussain, 2022. "Is geopolitical risk priced in the cross-section of cryptocurrency returns?," Finance Research Letters, Elsevier, vol. 49(C).

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    More about this item

    Keywords

    Bitcoin; Gold; Geopolitical risks; Safe haven; Principal component analysis; Dependence switching copula model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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