Dependences and risk spillover effects between Bitcoin, crude oil and other traditional financial markets during the COVID-19 outbreak

Abstract

This study examines the relationship and risk spillover between Bitcoin, crude oil, and six traditional markets (the US stock, Chinese stock, gold, bond, currency, and real estate markets) from 2019 to 2020, during which the coronavirus disease 2019 (COVID-19) outbreak occurred as well. We first discuss the static relationship between Bitcoin and these markets using a quantile-on-quantile model and examine the dynamic relationship using a time-varying copula model. A conditional value-at-risk model is subsequently used to estimate the risk spillover between the markets studied. The empirical results reveal that the relationship between these markets is always time-varying, and the COVID-19 outbreak has revealed such changes in the relationship between Bitcoin and other traditional financial markets. The risk of all single markets has enhanced because of the pandemic. Further, the risk spillover of these markets has also changed dramatically since the COVID-19 outbreak during which the Bitcoin market has played an important role and exerted a significant impact on the crude oil market, and the four other markets (US stock, gold, Chinese stock, and real estate markets). Overall, our findings indicate that investors and policymakers need to be made aware of the risk spillover between Bitcoin, crude oil, and other traditional markets and that flexible hedge strategies and policies should be implemented in response to the challenges and economic recession observed following the COVID-19 outbreak.

Comparison of the Asymmetric Relationship between Bitcoin and Gold, Crude Oil, and the U.S. Dollar before and after the COVID-19 Outbreak

“…Given this, scholars have been focused on the study of the relationship between Bitcoin and crude oil. Some scholars, such as the authors of Hsu et al (2023); ; Su and Li (2020); Zha et al (2023), investigated the risk spillover effect and transmission path of Bitcoin, crude oil, and other financial assets. Some pay attention to the dynamic correlation between Bitcoin and crude oil and their volatility (Attarzadeh and Balcilar 2022;Ozturk 2020).…”

The impact of bitcoin on gold, the volatility index (VIX), and dollar index (USDX): analysis based on VAR, SVAR, and wavelet coherence

“…More recent research has focused on the risk-return tradeoff between BTC and other asset classes. The study by Zha et al (2023) explores the dependences and risk spillover between BTC, crude oil and other traditional financial markets during the COVID-19 outbreak. The findings indicate significant risk transmission among these markets, highlighting the interconnectedness and interdependencies during this period.…”

Volatility Spillover in the Turkish Financial Market: A QVAR Analysis

“…Their empirical findings reveal that the SandP 500 is the primary contributor of return spillover shocks for Asia-Pacific stock markets, while several other indices are significant recipients of these shocks. Additionally, several other notable studies (Abuzayed and Al-Fayoumi, 2021;Chevallier and Ielpo, 2013;Karim and Naeem, 2022;Yang and Zhou, 2017;Zha et al, 2023) have focused on return and volatility spillovers in financial markets.…”