Co-movements between Bitcoin and Gold: A wavelet coherence analysis

In this paper, we use dynamic conditional correlations (DCCs) and wavelet coherence to examine the hedging and diversification properties of gold futures vis-a-vis Bitcoin prices. Our research aims to reveal whether the bubble patterns of behavior in gold futures prices can be used to hedge against the bubble behavior in the Bitcoin market in the short-term, and vice versa; as well as whether each can be used to manage and hedge overall market and sector downside risk of the other asset/commodity. We find evidence of volatility persistence, causality, and phase differences between Bitcoin and gold futures prices. Contagion is observed to increase during the European sovereign debt crisis. Wavelet coherence results indicate a relatively high degree of co-movement across the 8–16 weeks frequency band between Bitcoin and gold futures prices for the 2012–2015 time period.

[1]  P. Ciaian,et al.  The economics of BitCoin price formation , 2014, 1405.4498.

[2]  Gold as an Infl ation Hedge in a Time-Varying Coefficient Framework , 2012 .

[3]  B. Lucey,et al.  Institute for International Integration Studies Is Gold a Hedge or a Safe Haven? an Analysis of Stocks, Bonds and Gold Is Gold a Hedge or a Safe Haven? an Analysis of Stocks, Bonds and Gold , 2022 .

[4]  Michael Graham,et al.  Short-term and long-term dependencies of the S&P 500 index and commodity prices , 2013 .

[5]  B. Lucey,et al.  Reassessing the Role of Precious Metals as Safe Havens - What Colour is Your Haven and Why? , 2017 .

[6]  Gold and the U.S. dollar: tales from the turmoil , 2013 .

[7]  C. Torrence,et al.  A Practical Guide to Wavelet Analysis. , 1998 .

[8]  W. Fuller,et al.  Distribution of the Estimators for Autoregressive Time Series with a Unit Root , 1979 .

[9]  Theodore Panagiotidis,et al.  On the relationship between oil and gold before and after financial crisis: linear, nonlinear and time-varying causality testing , 2015 .

[10]  D. Baur,et al.  Bitcoin, gold and the US dollar – A replication and extension , 2017, Finance Research Letters.

[11]  Ladislav Kristoufek,et al.  Gold, currencies and market efficiency , 2015, 1510.08615.

[12]  P. Phillips,et al.  Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? , 1992 .

[13]  Theodore Panagiotidis,et al.  Are gold and silver a hedge against inflation? A two century perspective , 2015 .

[14]  Gold and Inflation(s) – A Time-Varying Relationship , 2017 .

[15]  B. Lucey,et al.  Hedges and Safe Havens: An Examination of Stocks, Bonds, Gold, Oil and Exchange Rates , 2013 .

[16]  A. I. McLeod,et al.  DIAGNOSTIC CHECKING ARMA TIME SERIES MODELS USING SQUARED‐RESIDUAL AUTOCORRELATIONS , 1983 .

[17]  M. Hood,et al.  Is gold the best hedge and a safe haven under changing stock market volatility , 2013 .

[18]  G. Selgin.  Synthetic Commodity Money , 2013 .

[19]  M. Elbeck,et al.  Bitcoins as an investment or speculative vehicle? A first look , 2015 .

[20]  R. Engle.  Dynamic Conditional Correlation , 2002 .

[21]  Terence C. Mills,et al.  Gold as a hedge against the dollar , 2005 .

[22]  J. R. M. Hosking,et al.  The Multivariate Portmanteau Statistic , 1980 .

[23]  G. Dwyer.  The Economics of Bitcoin and Similar Private Digital Currencies , 2014 .

[24]  Ali Ahmed,et al.  The nexus between geopolitical uncertainty and crude oil markets: An entropy-based wavelet analysis , 2018 .

[25]  B. Lucey,et al.  The Financial Economics of Gold – A Survey , 2015 .

[26]  B. Lucey,et al.  A power GARCH examination of the gold market , 2007 .

[27]  António Rua,et al.  International comovement of stock market returns: a wavelet analysis , 2009 .

[28]  P. Alagidede,et al.  Wavelet time-scale persistence analysis of cryptocurrency market returns and volatility , 2019, Physica A: Statistical Mechanics and its Applications.

[29]  Lars Ivar Hagfors,et al.  On the Hedge and Safe Haven Properties of Bitcoin: Is it Really More than a Diversifier? , 2016 .

[30]  A. H. Dyhrberg.  Hedging capabilities of bitcoin. Is it the virtual gold , 2016 .

[31]  Seong‐Min Yoon,et al.  Time-varying evidence of efficiency, decoupling, and diversification of conventional and Islamic stocks , 2018 .

[32]  Don Bredin,et al.  Does Gold Glitter in the Long-Run? Gold as a Hedge and Safe Haven Across Time and Investment Horizon , 2014 .

[33]  P. Phillips.  Testing for a Unit Root in Time Series Regression , 1988 .

[34]  A. Worthington,et al.  Gold investment as an inflationary hedge: cointegration evidence with allowance for endogenous structural breaks , 2007 .

[35]  Ibrahim Unalmis,et al.  Is Gold a Safe Haven Against Equity Market Investment in Emerging and Developing Countries , 2014 .

[36]  Zhengjun Zhang,et al.  Can cryptocurrencies be a safe haven: a tail risk perspective analysis , 2018 .

[37]  Juan C. Reboredo,et al.  Is gold a hedge or safe haven against oil price movements , 2013 .

[38]  Elie Bouri,et al.  Bitcoin for energy commodities before and after the December 2013 crash: diversifier, hedge or safe haven? , 2017 .

[39]  S. Corbet,et al.  Exploring the Dynamic Relationships between Cryptocurrencies and Other Financial Assets , 2017 .

[40]  M. Laurini,et al.  Is Bitcoin a bubble? , 2019, Physica A: Statistical Mechanics and its Applications.

[41]  A. H. Dyhrberg.  Bitcoin, gold and the dollar – A GARCH volatility analysis , 2016 .

[42]  L. Sjaastad,et al.  The price of gold and the exchange rates: Once again , 2008 .

[43]  P. Webster,et al.  Interdecadal changes in the ENSO-monsoon system , 1999 .

[44]  D. Baur,et al.  Institute for International Integration Studies Is Gold a Safe Haven? International Evidence Is Gold a Safe Haven? International Evidence Is Gold a Safe Haven? International Evidence , 2022 .

[45]  J. Marshall.  The Role of the Investment Horizon in Optimal Portfolio Sequencing (An Intuitive Demonstration in Discrete Time) , 1994 .

[46]  B. Lucey,et al.  Institute for International Integration Studies the Macroeconomic Determinants of Volatility in Precious Metals Markets the Macroeconomics Determinants of Volatility in Precious Metals Markets the Macroeconomic Determinants of Volatility in Precious Metals Markets the Macroeconomic Determinants of V , 2022 .

[47]  Eng-Tuck Cheah,et al.  Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin , 2015 .

[48]  Sabri Boubaker,et al.  Black swan events and safe havens: The role of gold in globally integrated emerging markets , 2017 .

[49]  Lixia Loh,et al.  Co-movement of Asia-Pacific with European and US stock market returns: A cross-time-frequency analysis , 2013 .