Diversifying with Cryptocurrencies during COVID-19

38 Pages Posted: 30 Jun 2020

See all articles by John W. Goodell

John W. Goodell

University of Akron - Department of Finance, College of Business Administration

Stephane Goutte

University Paris-Saclay, UVSQ, CEMOTEV, UVSQ.

Date Written: June 20, 2020

Abstract

Literature suggests assets become more correlated during economic down- turns. The current COVID-19 crisis provides an unprecedented opportunity to investigate this considerably further. Further, whether cryptocurrencies provide a diversification for equities is still an unsettled issue. Additionally, the question of whether cryptocurrency futures are safe havens has received very little attention. We employ several econometric procedures, including wavelet coherence, copula principal component, and neural network analyses to rigorously examine the role of COVID-19 on the paired co-movements of six cryptocurrencies, as well as bitcoin futures, with fourteen equity indices and the VIX. We nd co-movements between cryptocurrencies and equity indices gradually increased as COVID-19 progressed. However, most of these co-movements are positively correlated, suggesting that cryptocurrencies do not provide a diversification benefit during downturns. Exceptions, however, are the co-movements of bitcoin futures and tether being negative with equities. Results are consistent with investment vehicles that attract either more informed or more speculative investors dierentiating themselves as safe havens.

Keywords: Co-movement; COVID-19; Bitcoin; Wavelet; Safe haven

JEL Classification: C58; F37; G14; G15; Q31

Suggested Citation

Goodell, John W. and Goutte, Stephane, Diversifying with Cryptocurrencies during COVID-19 (June 20, 2020). Available at SSRN: https://ssrn.com/abstract=3631971 or http://dx.doi.org/10.2139/ssrn.3631971

John W. Goodell

University of Akron - Department of Finance, College of Business Administration ( email )

259 S. Broadway
Akron, OH 44325
United States

Stephane Goutte (Contact Author)

University Paris-Saclay, UVSQ, CEMOTEV, UVSQ. ( email )

47 Boulevard Vauban
Guyancourt, 78280
France

HOME PAGE: http://https://sites.google.com/site/mathgoutte/

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