Is Bitcoin a hedge or safe haven for currencies? An intraday analysis

By Andrew Urquhart, Hanxiong Zhang. International Review of Financial Analysis, 2019

458 citations recorded by the source corpus.

Bitcoin has attracted a wealth of attention in the media and by investors alike and this paper investigates whether Bitcoin can act as a hedge or safe haven against world currencies. Contrary to previous studies, we assess the relationship between Bitcoin and currencies at the hourly frequency since Bitcoin experiences quite large volatility throughout the day. We employ a ADCC model and find that Bitcoin can be an intraday hedge for the CHF, EUR and GBP, but acts as a diversifier for the AUD, CAD and JPY. We also implement the non-temporal Hansen (2000) test to examine the safe haven properties of Bitcoin and find that Bitcoin is a safe haven during periods of extreme market turmoil for the CAD, CHF and GBP. Therefore our results indicate that Bitcoin does act as an intraday hedge, diversifier and safe haven for certain currencies, which will be of great interest to currency, cryptocurrency and high frequency investors alike.

Subfields: Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/3881a534f62fac49208fb41a33eb3aba5ff003c1

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Citations in the corpus

Cryptocurrency market contagion: Market uncertainty, market complexity, and dynamic portfolios (2019, background): “Authors such as Dyhrberg (2016); Bouri et al. (2017a); Urquhart and Zhang (2018), among others, assert that the Bitcoin might actually be employed for hedging against other asset classes such as shares of stock and currencies.”
Forecasting the volatility of Bitcoin: The importance of jumps and structural breaks (2020, background): “…and Pattanayak 2018; Nadarajah and Chu 2018; Tiwari et al 2018), the hedging and diversification benefits (Bouri et al 2017; Corbet et al 2018a; Urquhart and Zhang 2018; Borri 2019), the existence of bubbles (Cheah and Fry 2015; Corbet et al 2018b) and the behaviour of Bitcoin returns…”
Should investors include Bitcoin in their portfolios? A portfolio theory approach (2020, background): “2 Klein et al (2018) show that Bitcoin offers no hedging capabilities like gold which also holds for the brad cryptocurrency index CRIX while Urquhart and Zhang (2019) show that Bitcoin can be a hedge at an intraday level for the CHF, EUR and GBP currencies.”
COVID-19 and financial market efficiency: Evidence from an entropy-based analysis (2021, background): “But recently its property as a safe haven asset has triggered wide interests (Klein et al. 2018; Corbet et al., 2019; Shahzad et al. 2019; Urquhart and Zhang 2019; Conlon et al. 2020), though much of the research are performed in relatively normal periods.”
Safe haven or risky hazard? Bitcoin during the Covid-19 bear market (2020, unknown): “In recent years, the growing popularity of cryptocurrencies has inspired numerous studies of their hedging and safe haven properties (Urquhart and Zhang, 2019; Smales, 2019; Shahzad et al., 2019; Corbet et al., 2018b; Bouri et al., 2017).”
High frequency volatility co-movements in cryptocurrency markets (2019, methodology): “Similar to Urquhart and Zhang (2018), we then use three information criteria, namely Akaike (AIC), Bayesian (BIC) and Hannan-Quinn (HQ) as performance criteria as well as the statistical significance of the estimated asymmetry parameters in order to see which model between the two is the preferred o”