Abstract
ABSTRACT The following article explores the correlation between bitcoin and both stocks and gold. A Markov regime-switching approach was used to identify and date two regimes in each of these financial assets. Stock returns are characterized by short-lived episodes of elevated volatility and negative returns whereas bitcoin returns are characterized by a persistent high volatility state with positive returns. Gold stayed in the low volatility period most of the time and only a few short-lived episodes of high volatility were identified during the first year of the pandemic. A concordance measure was computed to assess the synchronicity and correlation between the regimes. The regimes of bitcoin and gold are uncorrelated suggesting that bitcoin is not yet perceived as a safe haven like gold. The regimes of bitcoin and stocks were also uncorrelated suggesting that bitcoin may be used as a hedge against stocks. Keywords Bitcoin, correlation between bitcoin and stock market, correlation between bitcoin and gold, Markov regime-switching.
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