Bitcoin and global financial stress: A copula-based approach to dependence and causality in the quantiles

Abstract

We apply different techniques and uncover the quantile conditional dependence between the global financial stress index and Bitcoin returns from July 18, 2010, to December 29, 2017. The results from the copula-based dependence show evidence of right-tail dependence between the global financial stress index and Bitcoin returns. We focus on the conditional quantile dependence and indicate that the global financial stress index strongly Granger-causes Bitcoin returns at the left and right tail of the distribution of the Bitcoin returns, conditional on the global financial stress index. Finally, we use a bivariate cross-quantilogram approach and show only limited directional predictability from the global financial stress index to Bitcoin returns in the medium term, for which Bitcoin can act as a safe-haven against global financial stress.

Effects of the geopolitical risks on Bitcoin returns and volatility

“…Financial stress causes Bitcoin returns at left and right tail of the latter's conditional distribution while this index has limited predictive power on Bitcoin. However, empirical evidence on Bitcoin's role as a safe haven against uncertainties is relatively scarce (Bouri et al 2018c). Our paper contributes to this literature by examining the effects of GPR on Bitcoin.…”

“…Bouri et al (2017b) measure uncertainty by using the volatility indices of 14 stock markets, and find that Bitcoin act as a hedge against uncertainty. Bouri et al (2018c) use the global financial stress index as a risk proxy and examine its effect on Bitcoin. Financial stress causes Bitcoin returns at left and right tail of the latter's conditional distribution while this index has limited predictive power on Bitcoin.…”

Predicting Bitcoin returns: Comparing the roles of newspaper- and internet search-based measures of uncertainty

“…Over the past three years, there has been a tremendous growth in research into the role of Bitcoin as a hedge against macroeconomic and financial uncertainties (see Bouri et al (2017Bouri et al ( , 2018, Aysan et al (2019) and Fang et al (2019) for detailed reviews of this literature). Demir et al (2018) show that increases in the newspaper-based measure of economic policy uncertainty (EPU) of the United States (US) developed by Baker et al (2016) tend to predict higher Bitcoin returns.…”

Exogenous drivers of Bitcoin and Cryptocurrency volatility – A mixed data sampling approach to forecasting

“…Second, we use broad range of possible economic and financial variables which might influence the volatility of major Cryptocurrencies. These include the Global Financial Stress Index (Bouri et al, 2018b), global and Chinese economic policy uncertainty (Demir et al, 2018), and crude oil (Hayes, 2017). Third, and unlike Conrad et al (2018) who use an in-sample analysis and compare information criteria of models with an identical number of parameters which makes a penalization irrelevant, we conduct a pseudo-out-of-sample and forecasting analysis over various time horizons to overcome this issue with the cost of less predictive power (Diebold, 2015, Hansen, 2010.…”