When Bitcoin has the flu: on Bitcoin’s performance to hedge equity risk in the early wake of the COVID-19 outbreak
Klaus Grobys
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 US 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.
Topics & Concepts
Equity (law)Coronavirus disease 2019 (COVID-19)CorrelationOutbreakEconometricsEconomicsHedgeFinancial economicsMonetary economicsBusinessInfectious disease (medical specialty)MedicineInternal medicineBiologyVirologyMathematicsDiseaseGeometryLawPolitical scienceEcologyBlockchain Technology Applications and SecurityMarket Dynamics and VolatilityCOVID-19 Pandemic Impacts