The Spill Over Effect of Bitcoin on Fiat Currencies: A Study on Pre and Covid Period

Triasesiarta Nur, Moch. Doddy Ariefianto, Kevin Kevin, Daniel Sharon

Abstract


We investigate the spillover effect from Bitcoin to selected Fiat currencies (Major and Emerging currencies) using the USD index as control. Our dataset comprises daily frequency from 2 composite currency indices, 7 Major currencies and 21 Emerging Market (EM) currencies from 01/01/2014 to 29/10/2021 (2042 observations). Applying the Dynamic Conditional Correlation - Generalized Autoregressive Conditional Heteroscedasticity (DCC-GARCH) method, we find evidence of spillover with changing patterns (from largely no spillover to negative spill over) between pre- Covid versus COVID-19 period. During the COVID period, Bitcoin demonstrates hedging capabilities against USD.

Keywords


Bitcoin; Fiat Currencies; spillover effect; DCC GARCH; Covid19

Full Text:

PDF

References


Aloui, R., Aïssa, M. S. B., & Nguyen, D. K. (2011).Global extreme financial interdependences, crisis, and contagion effects: The role of economic structure? Journal of Banking & Finance, 35(1), 130-141.

Alexander, C., Heck, D. F., & Kaeck, A. (2022). The role of binance in Bitcoin volatility transmission. Applied Mathematical Finance, 29(1), 1-32.

Anselin L, Rey SJ (1991) Properties of tests for spatial dependence in linear regression models. Geographical Analysis 23:112–131

Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of Exchange or speculative assets? International Journal Financial of Markets, Institutions, and Money, 54, 177–189. https://doi.org/10.1016/j.intfin.2017.12.004

Bauwens, L., Laurent, S., & Rombouts, J. V. K. (2006). Multivariate GARCH models: a survey. Journal of Applied Econometrics, 21(1), 79–109. https://doi.org/10.1002/jae.842

Bazot, G., Monnet, E., & Morys, M. (2022). Taming the global financial cycle: central banks as shock absorbers in the first era of lobalization. The Journal of Economic History, 82(3), 801-839.

Bhattarai, S., Chatterjee, A., & Park, W. Y. (2020). Global spillover effects of US uncertainty. Journal of Monetary Economics, 114, 71–89. https://doi.org/10.1016/j.jmoneco.2019.05.008

Bollerslev, T. 1(990). Modeling the Coherence in Short-Run Nominal Exchange Rates: A Multivariate Generalized ARCH Model. In The Review of Economics and Statistics, 498–505.

Bouri, E., Gupta, R., Tiwari, A. K., & Roubaud, D. (2017). Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in quantile regressions. Finance Research Letters, 23, 87-95. https://doi.org/10.1016/j.frl.2017.02.009

Bouri, E., Das, M., Gupta, R., & Roubaud, D. (2018). Spillovers between Bitcoin and other assets during bear and bull markets. pplied Economics, 50(55), 5935–5949. https://doi.org/10.1080/00036846.2 018.1488075

Carrick, J. (2016). Bitcoin as a Complement to Emerging Market Currencies. Emerging Markets Finance and Trade, 52(10), 2321 2334. https://doi.org/10.1080/1540496x.2 016.1193002.

Cebrián-Hernández, Á., & Jiménez Rodríguez, E. (2021). Modeling of the Bitcoin volatility through key financial environment variables: An application of conditional correlation MGARCH models. Mathematics, 9(3), 267.

Celık, S. (2012). The more contagion effect on emerging markets: The evidence of DCC-GARCH model. Economic Modelling, 29(5), 1946 1959. https://doi.org/10.1016/j.econmod.2 012.06.011

Cho, J. B., Min, H. G., & McDonald, J. A. (2020). Volatility currency and dynamic hedging. Journal International Financial of Markets, Institutions and Money, 64, 101163. https://doi.org/10.1016/j.intfin.2019.101163

Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 62, 182–199. https://doi.org/10.1016/j.irfa.2018.0 9.003

Cunha, P. R., Melo, P., & Sebastião, H. (2021). From Bitcoin to central bank digital currencies: Making sense of the digital money revolution. Future Internet, 13(7), 165.

Dyhrberg, A. H. (2016). Bitcoin, gold and the dollar – A GARCH volatility analysis. Finance Research Letters, 16, 85–92. https://doi.org/10.1016/j.frl.2015.10.008

Engle, R (2002). Dynamic Conditional Correlation. Journal of Business & Economic Statistics, 20(3), 339–350. doi:10.1198/073500102288618487.

Fasanya, I. O., Oyewole, O., & Dauda, M. (2023). Uncertainty due to infectious diseases and Bitcoin-gold nexus: Evidence from a non-parametric causality-in-quantiles approach. Resources Policy, 82, 103549.

Flori, A. (2019). Cryptocurrencies in finance: Review and applications. International Journal of Theoretical and Applied Finance, 22(05), 1950020. https://doi.org/10.1142/S021902491 9500201.

Getis A (1997) Spatial statistics. San Diego State University, San Diego.

Giudici, G., Milne, A., & Vinogradov, D. (2020). Cryptocurrencies: market analysis and perspectives. Journal of Industrial and Business Economics, 47, 1-18.

Guzmán, A., Pinto-Gutiérrez, C., & Trujillo, M. A. (2021). Trading Cryptocurrencies as a Pandemic Pastime: COVID-19 Lockdowns and Bitcoin Volume. Mathematics, 9(15), 1771. https://doi.org/10.3390/math91517 71.

Ji, Q., Bouri, E., Lau, C. K. M., & Roubaud, D. (2019). Dynamic connectedness and integration in cryptocurrency markets. International Review of Financial Analysis, 63, 257-272.

Jiménez, I., Mora-Valencia, A., & Perote, J. (2024). Bitcoin halving and the integration of cryptocurrency and forex markets: An analysis of the higher-order moment spillovers.

International Review of Economics & Finance. Kaur, H. (2004). Time varying volatility in the Indian stock market. Vikalpa, 29(4), 25-42.

Khalfaoui, R., Hammoudeh, S., & Rehman, M. Z. (2023). Spillovers and connectedness among BRICS stock markets, cryptocurrencies, and uncertainty: Evidence from the quantile vector autoregression network. Emerging Markets Review, 54, 101002.

Kyriazis, N., Papadamou, S., Tzeremes, P., & Corbet, S. (2023). The differential influence of social media sentiment on cryptocurrency returns and volatility during COVID-19. The Quarterly Review of Economics and Finance, 89, 307-317.

Kumar, A. S., & Anandarao, S. (2019). Volatility spillover in crypto-currency markets: Some evidences from GARCH and wavelet analysis. Physica A: Statistical Mechanics and its Applications, 524, 448-458. https://doi.org/10.1016/j.physa.2019.04.154

Kyriazis, N. A. (2019). A survey on empirical findings about spillovers in cryptocurrency markets. Journal of Risk and Financial Management, 12(4), 170. https://doi.org/10.3390/jrfm12040170

Levulytė, L., & Šapkauskienė, A. (2021). Cryptocurrency in context of fiat money functions. The Quarterly Review of Economics and Finance, 82, 44-54.

Liu, Y., & Tsyvinski, A. (2021). Risks and returns of cryptocurrency. The Review of Financial Studies, 34(6), 2689-2727. https://doi.org/10.1093/rfs/hhaa11 3.

Lu, C., Li, J., Liu, L., & Yu, F. (2023). Spillover effect of the RMB and NonUSD currencies after the COVID-19 pandemic: Evidence captured from 30-minute high frequency data. International Review of Economics & Finance, 84, 527-552

Majdoub, J., Ben Sassi, S., & Bejaoui, A. (2021). Can fiat currencies really hedge Bitcoin? Evidence from dynamic short-term perspective. Decisions in Economics and Finance, 44(2), 789-816.

Nakamoto, S. (2008). Bitcoin: a peer-to peer electronic cash system. Decentralized Business Review. Nguyen, D. T., Phan, D. H. B., & Ming, T. C. (2021). An assessment of how COVID-19 changed the global equity market. Economic Analysis Policy, 69, and 480-491. https://doi.org/10.1016/j.eap.2021.01.003

Poon, S., & Granger, C.W.J. (2003). Forecasting Volatility in Financial Markets: A Review. Journal of Economic Literature, 41(2), 478–539. doi:10.1257/002205103765762743

Qarni, M. O., & Gulzar, S. (2021). Portfolio diversification benefits of alternative currency investment in Bitcoin and foreign exchange markets. Financial Innovation, 7(1). https://doi.org/10.1186/s40854-02100233-5

Rubbaniy, G., Polyzos, S., Rizvi, S. K. A., & Tessema, A. (2021). COVID-19, Lockdowns, and herding towards a cryptocurrency market-specific implied volatility index. Economics Letters, 207, 110017. https://doi.org/10.1016/j.econlet.2021.110017

Said, S. E., & Dickey, D. A. (1984). Testing for unit roots in autoregressive moving average models of unknown order. Biometrika, 71(3), 599–607. https://doi.org/10.1093/biomet/71.3 .599.

Sanz Bas, D. (2020). Hayek and the cryptocurrency revolution. Iberian Journal of the History of Economic Thought, 7(1). Schilling, L., & Uhlig, H. (2019). Some simple Bitcoin economics. Journal of Monetary Economics, 106, 16-26.https://doi.org/10.1016/j.jmoneco.2019.07.002

Sensoy, A. (2019). The inefficiency of Bitcoin revisited: A high-frequency analysis with alternative currencies. Finance Research Letters, 28, 68–73. https://doi.org/10.1016/j.frl.2018.04.002

Solnik, B., Boucrelle, C., & le Fur, Y. (1996). International Market Correlation and Volatility. Financial Analysts Journal, 52(5), 17–34. https://doi.org/10.2469/faj.v52.n5.2021

Urquhart, A., & Zhang, H. (2019). Is Bitcoin a hedge or haven for currencies? An intraday analysis. International Review of Financial Analysis, 63, 49–57. https://doi.org/10.1016/j.irfa.2019.02.009

Vardar, G., Coşkun, Y., & Yelkenci, T. (2018). Shock transmission and volatility spillover in stock and commodity markets: evidence from advanced and markets. Eurasian Review, 8(2), emerging Economic 231-288. https://doi.org/10.1007/s40822-0180095-3

Wang, C. (2021). Different GARCH models analysis of returns and volatility in Bitcoin. Data Science in Finance and Economics, 1(1), 37-59

Wang, G., Tang, Y., Xie, C., & Chen, S. (2019). Is Bitcoin a safe haven or a hedging asset? Evidence from China. Journal of Management Science and Engineering, 4(3), 173–188. https://doi.org/10.1016/j.jmse.2019.09.001

Yaya, OlaOluwa S., Mohammed M. Tumala, and Christopher G. Udomboso (2016). "Volatility persistence and returns spillovers between oil and gold prices: Analysis before and after the global financial crisis." Resources Policy 49 (2016): 273-281. https://doi.org/10.1016/j.resourpol.2016.06.008

Zhang, D., Hu, M., & Ji, Q. (2020). Financial markets under the global pandemic of COVID-19. Finance Research Letters, 36, 101528. https://doi.org/10.1016/j.frl.2020.101528

Zhang, D., Sun, Y., Duan, H., Hong, Y., & Wang, S. (2023). Speculation or currency? Multi-scale analysis of cryptocurrencies—The case Bitcoin. International Review of of Financial Analysis, 88, 02700.

Zhang, Y. J., Fan, Y., Tsai, H. T., & Wei, Y. M. (2008). Spillover effect of US dollar exchange rate on oil prices. Journal of Policy Modeling, 30(6), 973–991. https://doi.org/10.1016/j.jpolmod.2 008.02.002.




DOI: http://dx.doi.org/10.20961/jab.v24i1.1258

Jurnal Akuntansi dan Bisnis (JAB)
ISSN 1412-0852 (print), 2580-5444 (online)
Published by Accounting Study Program, Faculty of Economics and Business, Universitas Sebelas Maret, Indonesia


Creative Commons License
JAB on http://jab.fe.uns.ac.id/index.php/jab is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

Visitor Statistic