Evaluating the Efficiency of Financial Assets as Hedges against Bitcoin Risk during the COVID-19 Pandemic

Li Wei; Ming-Chih Lee; Wan-Hsiu Cheng; Chia-Hsien Tang; Jing-Wun You

doi:10.3390/math11132917

journal article Open Access Jun 29, 2023

Evaluating the Efficiency of Financial Assets as Hedges against Bitcoin Risk during the COVID-19 Pandemic

Li Wei

Ming-Chih Lee Wan-Hsiu Cheng Chia-Hsien Tang Jing-Wun You

Mathematics Vol. 11 No. 13 pp. 2917 · MDPI AG

View at Publisher Save 10.3390/math11132917

Abstract

In the turbulent landscape of financial markets, Bitcoin has emerged as a significant focus for investors due to its highly volatile returns. However, the risks and uncertainties associated with it necessitate effective hedging strategies. This paper explores the potential of various financial assets, including interest rates, stock markets, commodities, and exchange rates, as dynamic hedges against Bitcoin’s risk. Utilizing a DCC-GARCH model, we construct a dynamic hedging model to analyze the viability of these financial assets as hedges. The data is categorized into pre-pandemic and pandemic periods to assess any change in hedging performance due to the outbreak of COVID-19. Our empirical findings suggest that the dynamic DCC-GARCH model outperforms the static OLS model in this context. During the pandemic period, a diverse set of financial assets demonstrated enhanced efficiency in hedging Bitcoin risk compared to the pre-pandemic phase. Among the hedging commodities, stock market indices, the US dollar index, and commodity futures displayed superior performance.

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Metrics

5

Citations

25

References

Details

Published: Jun 29, 2023
Vol/Issue: 11(13)
Pages: 2917
License: View

Authors

L

Li Wei

Guangxi Accounting Research Institution, The Center of Econometric Application in Accounting and Finance, College of Accounting and Auditing, Guangxi University of Finance and Economics, Nanning 530003, China

M

Ming-Chih Lee

Department of Banking and Finance, College of Business and Management, Tamkang University, New Taipei City 251301, Taiwan

W

Wan-Hsiu Cheng

Department of Banking and Finance, College of Business and Management, Tamkang University, New Taipei City 251301, Taiwan

C

Chia-Hsien Tang

Guangxi Accounting Research Institution, The Center of Econometric Application in Accounting and Finance, College of Accounting and Auditing, Guangxi University of Finance and Economics, Nanning 530003, China

J

Jing-Wun You

Department of Banking and Finance, College of Business and Management, Tamkang University, New Taipei City 251301, Taiwan

Funding

Guangxi First-class Discipline Statistics Construction Project Fund Award: JGY2020183

Cite This Article

Li Wei, Ming-Chih Lee, Wan-Hsiu Cheng, et al. (2023). Evaluating the Efficiency of Financial Assets as Hedges against Bitcoin Risk during the COVID-19 Pandemic. Mathematics, 11(13), 2917. https://doi.org/10.3390/math11132917

Evaluating the Efficiency of Financial Assets as Hedges against Bitcoin Risk during the COVID-19 Pandemic

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