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Trade uncertainties and the hedging abilities of Bitcoin
Author(s) -
Bouri Elie,
Gkillas Konstantinos,
Gupta Rangan
Publication year - 2020
Publication title -
economic notes
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.274
H-Index - 19
eISSN - 1468-0300
pISSN - 0391-5026
DOI - 10.1111/ecno.12173
Subject(s) - diversification (marketing strategy) , economics , robustness (evolution) , hedge , stock (firearms) , econometrics , stock market , negative correlation , positive correlation , financial economics , monetary economics , business , mechanical engineering , medicine , ecology , paleontology , biochemistry , chemistry , horse , marketing , biology , engineering , gene
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.