Volatility dynamics and diversification benefits of Bitcoin under asymmetric and long memory effects. (21st December 2021)

• Record Type: Journal Article
• Authors: Jeribi, Ahmed; Fakhfekh, Mohamed; Jarboui, Anis
• Is Part Of: Global business & economics review. Volume 26:Number 1(2022)
• Page Start: 65
• Page End: 83
• Publication Date: 2021-12-21
• Subjects: Bitcoin -- gold -- stock market indices -- FIEGARCH -- mean-variance spanning test; Economics -- Periodicals; International economic relations -- Periodicals; 330.5
• Languages: English
• ISSNs: 1097-4954

Abstract

The purpose lying behind this paper is twofold. In the first place, it aims at discussing the volatility dynamics of Bitcoin, gold, oil price and stock market indices in terms of goodness-of-fit to asymmetric and long-memory GARCH models. In the second place, it focuses on examining diversification benefits of Bitcoin between 19 August 2011 and 9 November 2018 using mean-variance spanning tests. It has been discovered that the most effectively fit framework turns out to be the Fractionally Integrated Exponential GARCH model (FIEGARCH), displaying the highly significant characteristic of encompassing both of the asymmetric as well as long-memory components of conditional variance. The reached findings suggest that the shock impact on Bitcoin and gold return volatilities have proven to be permanent, while its persistence on the other indices has been discovered to be transitory. Indeed, the results show that Bitcoin yields significant diversification benefits when being added to a well-diversified benchmark portfolio.