When Bitcoin Has the Flu: On Bitcoin’s Performance to Hedge Equity Risk in the Early Wake of the COVID-19 Outbreak
15 Pages Posted: 1 Apr 2020
Date Written: April 1, 2020
Using the coronavirus COVID-19 outbreak as a set-up for a quasi-experiment, this study derives novel insights on the dynamic correlation between Bitcoin and U.S. stocks. Given the unprecedented scale of infections and the nature of the virus, the potential impact on the dynamic correlation was unpredictable and therefore uncertain. Using a difference-in-differences setting, the dynamic correlation between Bitcoin and stocks is controlled for the dynamic correlation between gold and stocks. This study finds that Bitcoin performed poorly in hedging this tail risk.
Keywords: bitcoin, coronavirus, COVID-19, hedging, financial technology
JEL Classification: G01, G21, G30, G32
Suggested Citation: Suggested Citation