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Diversifying with cryptocurrencies during COVID-19

Author

Listed:
  • John W Goodell

    (University of Akron)

  • Stéphane Goutte

    (Cemotev - Centre d'études sur la mondialisation, les conflits, les territoires et les vulnérabilités - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines)

Abstract

Literature suggests assets become more correlated during economic downturns. The current COVID-19 crisis provides an unprecedented opportunity to investigate this considerably further. Further, whether cryptocur-rencies provide a diversification for equities is still an unsettled issue. Additionally , the question of whether cryptocurrency futures are safe havens has received very little attention. We employ several econometric procedures , including wavelet coherence, copula principal component, and neural network analyses to rigorously examine the role of COVID-19 on the paired co-movements of six cryptocurrencies, as well as bitcoin futures, with fourteen equity indices and the VIX. We find co-movements between cryptocurrencies and equity indices gradually increased as COVID-19 progressed. However, most of these co-movements are positively correlated, suggesting that cryptocurrencies do not provide a diversification benefit during downturns. Exceptions, however, are the co-movements of bitcoin futures and tether being negative with equities. Results are consistent with investment vehicles that attract either more informed or more speculative investors differentiating themselves as safe havens.

Suggested Citation

  • John W Goodell & Stéphane Goutte, 2021. "Diversifying with cryptocurrencies during COVID-19," Post-Print halshs-02876529, HAL.
  • Handle: RePEc:hal:journl:halshs-02876529
    DOI: 10.1016/j.irfa.2021.101781
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02876529
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Co-movement; COVID-19; Bitcoin; Wavelet; Safe haven JEL classification: C58;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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