Do bitcoin and precious metals do any good together? An extreme dependence and risk spillover analysis

摘要

The speculative nature of Bitcoin over the last 5 years documents high returns for investors and can also provide optimal returns with a good mix of some assets with hedging abilities. We analyze extreme dependence and risk spillover between Bitcoin and a sample of precious metal commodities comprising of gold, silver, copper, wheat, platinum and palladium over a sample period of April 2013-January 2018 based on daily data. We test the long memory properties of our sampled assets using ARFIMA-FIGARCH model followed by followed by time varying copula framework. Later we use VaR, CoVaR and Delta CoVaR tests to measure risk spillover and resulting asymmetries. Our results contribute towards the existing literature by reporting the hedging ability of gold for Bitcoin and the effect that have on precious metal returns. In this way our results provide insights in both the direction. Our results also document spillover from Bitcoin to precious metal market however in terms of directional spillover from precious metals to Bitcoin, silver remains insensitive to any downside risk spillover. We also report asymmetries in upside and downside CoVaR values, suggesting that extreme changes in returns in either of the market has the potential to affect extreme returns in the other market. Our results have implications for individual investor and fund managers in formulating an optimal portfolio yielding returns with hedge against extreme downward price movements.