A wavelet approach for causal relationship between bitcoin and conventional asset classes. (June 2021)

• Record Type: Journal Article
• Authors: Bhuiyan, Rubaiyat Ahsan; Husain, Afzol; Zhang, Changyong
• Is Part Of: Resources policy. Volume 71(2021)
• Publication Date: 2021-06
• Subjects: Bitcoin -- Gold -- Wavelet -- Lead-lag relation -- Diversification; Mines and mineral resources -- Periodicals; Ressources minérales -- Périodiques; Ressources naturelles -- Gestion -- Périodiques; Environnement -- Politique gouvernementale -- Périodiques; 333.8
• DOI: 10.1016/j.resourpol.2020.101971
• Languages: English
• ISSNs: 0301-4207

Abstract

Abstract: To identify the interrelationship between Bitcoin and different asset classes, this paper employs a wavelet approach to analyze the lead-lag relationship between Bitcoin and gold, currency, commodity, stock indices, and bond indices. From the study on the daily prices of Bitcoin and the assets for the time period of July 2014 to November 2019, a neutral dependence is indicated in most circumstances between Bitcoin and crude oil as well as the aggregate indices. Meanwhile, for the U.S. dollar index, a weak unidirectional causal relationship is identified at wavelet level two. The notable exception is gold, which shows strong bidirectional causality at most of the wavelet levels, a phenomenon that interestingly has not been generally captured. The implication of relatively isolation of Bitcoin from most financial assets and commodities suggests that Bitcoin may offer a diversification benefit to the global investors. Highlights: A wavelet approach employed to identify the interrelationship between Bitcoin and a number of representative asset classes. Strong bidirectional causality revealed between gold and Bitcoin, which has not been generally captured in the literature. Neutral lead-lag relationship indicated between Bitcoin and the aggregate commodity index, crude oil, and the US dollar index. Relatively isolation of Bitcoin implied from most financial assets and commodities. Diversi_cation benefit suggested by adding Bitcoin to an investment portfolio.