Trade uncertainties and the hedging abilities of Bitcoin. (26th May 2020)

• Record Type: Journal Article
• Authors: Bouri, Elie; Gkillas, Konstantinos; Gupta, Rangan
• Is Part Of: Economic notes. Volume 49:Number 3(2020)
• Page Start: n/a
• Page End: n/a
• Publication Date: 2020-05-26
• Subjects: Bitcoin -- realised correlation -- trade uncertainty -- US stock market; Economics -- Periodicals; 330.9
• DOI: 10.1111/ecno.12173
• Languages: English
• ISSNs: 0391-5026

Abstract

Abstract: In this paper, we first estimate the monthly realised correlation, based on daily data, between stock returns of the United States (US) and Bitcoin returns. Then, we relate the realised correlation over the period October 2011 to May 2019 with a news‐based measure of the growth of trade uncertainty of the US. Our results show that the realised correlation is negatively impacted by increases in trade uncertainty, which continues to hold under alternative robustness checks, suggesting that Bitcoin can act as a hedge relative to the conventional stock market in the wake of heightened trade policy‐related uncertainties, and provide diversification benefits for investors.