Abstract
In times of exogenous systemic shocks, such as the COVID-19 pandemic, it is important to identify hedge or safe haven assets. Therefore, this paper analyzes changes in the idiosyncratic risk of Bitcoin in a portfolio of commodities and global stocks. For this purpose, the M-GARCH model employed considers the interdependence among all the portfolio assets by using a time-varying asset pricing framework. This framework measures the impact of commodities and global stock prices as sources of systemic risk for Bitcoin returns before and after the COVID-19 pandemic. The evidence suggests that during the COVID-19 pandemic, the effects of changes in commodities and global prices on the idiosyncratic risk of Bitcoin were statistically significant. The idiosyncratic risk of Bitcoin measured as a percentage of total variance not accounted for by the proposed model rose from 86.06% to 95.05% during the pandemic. These results are in line with previous studies regarding the properties of Bitcoin as a hedge or safe haven asset for a portfolio composed of commodities and global stocks.
Highlights
It is no secret that cryptocurrencies, such as Bitcoin, represent a series of opportunities and enigmas regarding what type of asset class they resemble or if, they constitute a new asset class
The NBC news on COVID-19 timeline (2020) was used to identify the period when the pandemic started to take on momentum, which was when the World Health Organization (WHO) declared a global public health emergency after more than 9,000 deaths were confirmed on January 30, 2020
The pre-COVID-19 period is between February 10, 2016, and January 29, 2020, and the post-COVID-19 period is between January 30, 2020, and March 2, 2021
Summary
It is no secret that cryptocurrencies, such as Bitcoin, represent a series of opportunities and enigmas regarding what type of asset class they resemble or if, they constitute a new asset class. A “weak” safe haven Hoang et al (2020) measured the connectedness asset is where there is no evidence of predictability of Bitcoin to a portfolio composed of oil and a sebetween the assets in extreme market conditions. For used an asymmetric causality test to see the dithe majority of common financial assets, there rection of the volatility spillovers of Bitcoin and was a contagion effect during the COVID-19 pan- a series of indices and commodities. It was found demic (Akhtaruzzaman et al, 2021).
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