On the Safe‐Haven Ability of Bitcoin, Gold, and Commodities for International Stock Markets: Evidence from Spillover Index Analysis

Abstract

Stock market is susceptible to various external shocks for its tight dependence on economic fundamentals, financial speculation, and fragile emotions in massive traders, making it a very risky market for investors. In this paper, we aim to identify whether commonly recognized safe-haven assets, that is, bitcoin, gold, and commodities, can provide investors with effective hedging utility in international stock markets, especially during periods of extreme market turbulence. By using the spillover index method based on the TVP-VAR model, we find that firstly, bitcoin, gold, and commodities can only offer weak hedging effects on stock markets. Furthermore, their abilities to act as a safe haven are ranked as: commodities > gold > bitcoin. Secondly, in general, we have observed the increasing hedging ability of these safe-haven assets in times of extreme market turmoil. Thirdly, among international stock and safe-haven asset markets, the world and the developed stock markets act as the net spillover transmitters, while bitcoin, gold, and commodities are the net recipients. Lastly, the total spillover effects are time-varying and increase significantly after the outbreak of extreme events.

Dynamic Volatility Connectedness among Cryptocurrencies: Evidence from Time-Frequency Connectedness Networks

“…The findings of these studies state that cryptocurrencies are positively and strongly interdependent. Furthermore, some studies examined the relationship between economic uncertainty and cryptocurrencies and financial variables (Fasanya et al, 2021a;Wang et al, 2022b).…”

COVID-19 and information flow between cryptocurrencies, and conventional financial assets

“…Recent studies conducted on the relationship between cryptocurrency markets and conventional assets, accounting for the COVID-19 outbreak or other extreme events, including those of Bouri, Cepni, Gabauer, and Gupta (2021) , Kumar et al (2022) , Shahzad et al (2020) , Shahzad et al (2021) , and Wang et al (2022) . For example, using the TVP-VAR model, Bouri et al (2021) show evidence of a dramatic change in the structure and time-varying patterns of return connectedness across various assets (gold, crude oil, world equities, currencies, and bonds) around the COVID-19 outbreak.…”

“…They also find that the diversification benefits offered by gold to equity investments in the G7 markets are much higher and more stable than those of Bitcoin, especially when both the stock and gold markets are in a bearish state. Finally, Wang et al (2022) consider the importance of Bitcoin, gold, and other commodities being effective hedging utility in international stock markets, especially during periods of extreme market turbulence. Using the TVP-VAR model, they find that Bitcoin, gold, and commodities can only offer weak hedging effects on stock markets, while their abilities to act as a safe haven are ranked as commodities > gold > bitcoin.…”

Evaluating the Safe-Haven Abilities of Bitcoin and Gold for Crude Oil Market: Evidence During the COVID-19 Pandemic

“…It is crucial to consider these aspects. First, information transmission between assets and the financial market can provide empirical evidence when studying safe-haven assets ( Yang et al, 2022 ; Wang et al, 2022 ). In addition, considering the frequency can provide strong support for the impact of short-term adjustments, median-term adaptations and long-term policy supervision, which is beneficial for investors to make different choices when connectedness and information transmission vary across time horizons.…”