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

See all articles by Klaus Grobys

Klaus Grobys

University of Vaasa; University of Jyväskyla

Date Written: April 1, 2020

Abstract

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

Grobys, Klaus, When Bitcoin Has the Flu: On Bitcoin’s Performance to Hedge Equity Risk in the Early Wake of the COVID-19 Outbreak (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3565844 or http://dx.doi.org/10.2139/ssrn.3565844

Klaus Grobys (Contact Author)

University of Vaasa ( email )

P.O. Box 700
Wolffintie 34
FIN-65101 Vaasa
Finland

University of Jyväskyla ( email )

Jyväskyla
Finland

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