Does Contagion Effect of Bubbles and Causality Exist Among Bitcoin, Gold, and Oil Markets?

Abstract

The author studies the explosive behaviors, causality relationships, and contagion effects between three financial markets using the daily closing prices of Bitcoin, gold, and West Texas Intermediate (WTI) oil prices for a sample period from July 19, 2010 to September 10, 2021. By employing the generalized supremum augmented Dickey-Fuller (GSADF) approach, the author finds significant evidence of bubble explosive behaviors in the Bitcoin and WTI prices—but not in the gold prices—and these periods mostly match with the periods of quantitative easing and financial stress. Besides, the test shows several short and long episodes of unilateral causal linkages from Bitcoin returns to oil price changes under homoscedasticity and heteroskedasticity assumptions. The results show no evidence for the contagion effect of bubbles between cryptocurrency and oil markets during the sample period.

Do Bubbles in the Bitcoin Market Impact Stock Markets? Evidence From 10 Major Stock Markets

“…Given that the test statistics for both lengths of window exceed the critical value at 5% significance, we strongly reject the null hypothesis of the nonexistence of bubble behavior in Bitcoin prices. The results provide evidence of multiple episodes of explosive behavior, in line with previous studies such as Gemici (2020), Anyfantaki et al (2021), Diniz et al (2022), andGo¨k (2022). Then we use the real-time bubble detection method, which is immune to unconditional heteroskedasticity and multiplicity problems, to date-stamp bubbles.…”

“…We observe one short-lived and two positive mildly long-lived explosive episodes, of which the second was a long-lasting episode of 83 days duration in 2017 and early 2018, with up to 10-fold price increases from $1,115.30 to $11,607.40. These explosive episodes are mostly in line with , Enoksen et al (2020), Maouchi et al (2022), andGo¨k (2022), coinciding with the last months of the quantitative easing schedule of ECB and tightening monetary policy settings of FED (QT1) in 2018. The Bitcoin market sees a short-lived period of price explosion, lasting 10 days, in June 2019 and the origination and termination dates of the bubble, respectively, could be ascribed to: (i) the release of a new currency payment business model ''Libra'' by Facebook, encouraging market confidence of Bitcoin; and (ii) the criticisms and suspicions of authorities concerning national security, monetary policy, privacy, and trading (Li et al, 2021).…”