Weekly Dynamic Conditional Correlations Among Cryptocurrencies and Traditional Assets

Abstract

This paper adopts a versatile multivariate conditional correlation model to estimate daily seasonality in the returns, the volatility, and the correlations between stocks, bonds, gold and Bitcoin. Besides the well known seasonality in stocks and bonds, the day-of-the-week effect is also present in Bitcoin. Mondays are associated with higher Bitcoin returns, while Wednesdays with higher Bitcoin volatility. As opposed to previous literature, our results indicate strong evidence of Bitcoin's leverage effect. Moreover, we show that daily correlations between Bitcoin and traditional assets are higher at the beginning of the week, while the volatility of these correlations decreases over the week. Our results offer interesting insights in terms of investment and portfolio diversification, that can be applied to the analysis of systematic risk asset allocation and hedging.

Bitcoin: Like a Satellite or Always Hardcore? A Core-Satellite Identification in the Cryptocurrency Market

“…In a next step, we convert the CC closing prices denoted in USD to EUR prices, using the daily USD-EUR exchange rates retrieved from Thomson Reuters Eikon. To prevent potential weekday biases, the resulting (daily) observations are converted to weekly observations (Dorfleitner and Lung, 2018;Aslanidis et al, 2020). The choice of weekly input data derives from the fact that professional asset management by institutional investors often does not operate on the basis of daily data.…”