Gold and Bitcoin Hedging against 10 Exchange Returns

Journal of International Trade & Commerce Vol.15, No.6, December 2019 (pp.49-68)

20 Pages Posted: 16 Mar 2020

Date Written: December 28, 2019

Abstract

Purpose - The purpose of this study was to examine gold and bitcoin hedging against 10 exchange returns.

Design/Methodology/Approach - This study collected financial data on exchange, gold, and bitcoin from FRB, St. Louis. A multiple Vector-BEKK regression analysis was used to analyze the data.

Findings - First, strong negative effects from exchange markets onto gold were found to exist in the EU, Switzerland, Australia, Brazil, Canada, Japan, and Korea, while there were weak effects in the UK. Bitcoin shows the weak hedging against all markets. Second, the paper also revealed that in EU, the cross-shock term significantly decreased gold volatility, but not bitcoin volatility, while in Japan it decreased bitcoin volatility. The significantly negative asymmetries in gold, but insignificant asymmetries in bitcoin, were found in most exchange markets. Exchange market volatility increases gold volatility in Japan while it decreased in the Indian and Korean markets. Cross-terms among three variables with bi-directional causality are valuable.

Research Implications or Originality - The study of the hedging of gold and bitcoin against various exchanges together shows that bi-variate models are useful to reconfirm the strong hedging of gold. Bitcoin, if well prepared to be immune to its deficiencies, might be very carefully used, but not at a magnitude equal to gold as a hedge against exchange. The results may enhance strategic risk management.

Keywords: Bitcoin, BEKK, Exchange, Gold, Hedge, VARMA-ASYM

JEL Classification: G11, G15

Suggested Citation

Hwang, Yong-Il, Gold and Bitcoin Hedging against 10 Exchange Returns (December 28, 2019). Journal of International Trade & Commerce Vol.15, No.6, December 2019 (pp.49-68), Available at SSRN: https://ssrn.com/abstract=3540596

Yong-Il Hwang (Contact Author)

Dongduk Women's University ( email )

23-1 Wolgok-dong
Sungbuk-gu
Seoul
Korea

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