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Cryptocurrencies as a Safe Haven Investment During the COVID-19 Outbreak: A Comprehensive Analysis

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  • Amira Hakim
  • Eleftherios Thalassinos

Abstract

Purpose: Using the onset of the COVID-19 pandemic, this paper examines cryptocurrencies as haven investments for stocks, analyzing our time-varying realizations in response to the economic shock caused by the growing pandemic. Design/Methodology/Approach: Utilizing daily data on COVID-19 measures and daily prices for four cryptocurrencies and four stock assets throughout the year 2020, we apply both the VAR-DCC-GARCH and Wavelet Coherency models. Findings: Our paper provides new evidence that Bitcoin and Ethereum are highly correlated with the selected stocks over both short and long horizons. However, Litecoin and XRP are negatively correlated with the stocks throughout the entire COVID-19 period. We find that Bitcoin serves as a strong safe haven asset for all the selected stocks during the COVID-19 era, while Litecoin is a weak safe haven investment, and XRP has the lowest potential as a safe haven investment for all the stocks studied. Practical Implications: This study provides diversification and hedging strategies for investors and policymakers, suggesting that cryptocurrencies acted as haven investments, similar to precious metals during historic crises, and functioned like fiat money during any economic shocks that may occur. Originality Value: This article addresses a gap in the literature regarding cryptocurrencies as an alternative investment during economic disturbances, particularly in the context of the COVID-19 pandemic.

Suggested Citation

  • Amira Hakim & Eleftherios Thalassinos, 2023. "Cryptocurrencies as a Safe Haven Investment During the COVID-19 Outbreak: A Comprehensive Analysis," European Research Studies Journal, European Research Studies Journal, vol. 0(2), pages 729-770.
    • Handle: RePEc:ers:journl:v:xxvi:y:2023:i:2:p:729-770
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    References listed on IDEAS

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    More about this item

    Keywords

    Cryptocurrencies; stocks; safe haven; co-movement; VAR-DCC-GARCH; wavelet transform; wavelet coherency.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M54 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Labor Management

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