Information transmission and hedging effectiveness for the pairs crude oil-gold and crude oil-Bitcoin during the COVID-19 outbreak

This study uses hourly data to analyse the return and volatility transmission of oil-gold and oil-Bitcoin pairs during the pre-COVID-19 and COVID-19 periods. The results show that the return transmissions vary across the two periods for both pairs. There is a unidirectional volatility spill-over fro...

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Bibliographic Details
Published inEconomic research - Ekonomska istraživanja Vol. 35; no. 1; pp. 1913 - 1934
Main Authors Yousaf, Imran, Ali, Shoaib, Bouri, Elie, Saeed, Tareq
Format Journal Article Paper
LanguageEnglish
Published Pula Routledge 31.12.2022
Taylor & Francis Ltd
Taylor and Francis Group i Sveučilište Jurja Dobrile u Puli, Fakultet ekonomije i turizma Dr. Mijo Mirković
Subjects
Bitcoin
Coronaviruses
COVID-19
Crude oil
Digital currencies
Disease transmission
Economic theory
gold
Hedging
hedging effectiveness
Petroleum
return and volatility spill-overs
return and volatility spillovers
Risk adjustment
safe haven
Volatility
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Summary:This study uses hourly data to analyse the return and volatility transmission of oil-gold and oil-Bitcoin pairs during the pre-COVID-19 and COVID-19 periods. The results show that the return transmissions vary across the two periods for both pairs. There is a unidirectional volatility spill-over from gold to oil in the pre-COVID-19 period, and from oil to gold during the COVID-19 period. There is a significant volatility spill-over from Bitcoin to oil during the pre-COVID-19 period, whereas no evidence of volatility spill-over between oil and Bitcoin is shown during the COVID-19 period. Based on optimal weights, investors should increase their investments in, (a) gold for a portfolio of oil-gold, and (b) Bitcoin for a portfolio of oil-Bitcoin during the COVID-19 period. All hedge ratios are higher during the COVID-19 period, implying a higher hedging cost compared to the pre-COVID-19 period. The results of hedging effectiveness reveal that the risk-adjusted returns can be improved by constructing a portfolio of oil-gold and oil-Bitcoin during both sample periods. Further results reveal that gold is a strong safe haven and a hedge for the oil market, while Bitcoin serves as a diversifier for the oil market during the COVID-19 period.
Bibliography:302243
ISSN:1331-677X
1848-9664
DOI:10.1080/1331677X.2021.1927787