Home   >   CSC-OpenAccess Library   >    Manuscript Information
The Relationship Between BITCOIN and Other Financial Instruments: An Examination With VAR Models
Semih Yilmazer, Asli Aybars, Gözde Bozkurt
Pages - 31 - 47     |    Revised - 17-01-2021     |    Published - 01-09-2021
Volume - 0   Issue - 0    |    Publication Date -   Table of Contents
MORE INFORMATION
KEYWORDS
Cryptocurrencies, Vector Autoregression, Bitcoin Returns, Bitcoin Volatility.
ABSTRACT
Bitcoin has become one of the most popular financial assets in the world because it has an unregulated nature and does not require any central authority. However, there has been an ongoing debate about Bitcoin classification. Whatever classification Bitcoin is subject to, it has become a significant component of investors’ portfolios. Accordingly, the returns of this instrument are an important matter of concern for both practitioners and academicians. In this study, we aim to analyze the effect of other financial assets on Bitcoin returns to figure out whether there is a hedging opportunity or not. In this manner, we used Vector Autoregression (VAR) model to test whether the associated variables; namely, gold, euro, and S&P 500 influence Bitcoin returns. The results of the study revealed that Bitcoin returns had no relationship with other financial assets in the long term. In other words, it was determined that financial assets did not affect Bitcoin prices. It was also found that Bitcoin had a deterministic process rather than a stochastic one. Hence, it is thought that Bitcoin should be examined by using VAR models instead of financial models such as ARMA, ARCH, and GARCH.
Baur, D. G., Dimpfl, T., & Kuck, K. (2018). Bitcoin, gold and the US dollar–A replication and extension. Finance research letters, 25, 103-110.
Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets?. Journal of International Financial Markets, Institutions and Money, 54, 177-189.
Blau, B. M. (2018). Price dynamics and speculative trading in Bitcoin. Research in International Business and Finance, 43, 15-21.
Bouri, E., Azzi, G., & Dyhrberg, A. H. (2017). On the return-volatility relationship in the Bitcoin market around the price crash of 2013. Economics: The Open-Access, Open-Assessment E-Journal, 11(1), 1-16.
Bouri, E., Das, M., Gupta, R., & Roubaud, D. (2018). Spillovers between Bitcoin and other assets during bear and bull markets. Applied Economics, 50(55), 5935-5949.
Briere, M., Oosterlinck, K., & Szafarz, A. (2015). Virtual currency, tangible return: Portfolio diversification with bitcoin. Journal of Asset Management, 16(6), 365-373.
Chohan, U. W., (2017). A History of Bitcoin. Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3047875
Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the dynamic relationships between cryptocurrencies and other financial assets. Economics Letters, 165, 28-34.
Cretarola, A., Figà-Talamanca, G., & Patacca, M. (2020). Market attention and Bitcoin price modeling: Theory, estimation and option pricing. Decisions in Economics and Finance, 43(1), 187-228.
Demir, E., Gozgor, G., Lau, C. K. M., & Vigne, S. A. (2018). Does economic policy uncertainty predict the Bitcoin returns? An empirical investigation. Finance Research Letters, 26, 145-149.
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427-431.
Dickey, D. A., & Fuller, W. A. (1981). Likelihood ratio statistics for autoregressive time series with a unit root. Econometrica: journal of the Econometric Society, 49(4), 1057-1072.
Dowd, K., & Hutchinson, M. (2015). Bitcoin will bite the dust. Cato Journal, 35(2), 357-382.
Dyhrberg, A. H. (2016). Hedging capabilities of bitcoin. Is it the virtual gold?. Finance Research Letters, 16, 139-144.
Enders, W. (1995). Applied Econometric Time Series. New York: Iowa State University. Jonh Wiley&Sons.
Eom, C., Kaizoji, T., Kang, S. H., & Pichl, L. (2019). Bitcoin and investor sentiment: statistical characteristics and predictability. Physica A: Statistical Mechanics and its Applications, 514, 511-521.
Erdas, M. L., & Caglar, A. E. (2018). Analysis of the relationships between Bitcoin and exchange rate, commodities and global indexes by asymmetric causality test. Eastern Journal of European Studies, 9(2), 27-45.
Ertek, T. (2000). Ekonometriye Giris, (Second Edition). Beta Publication.
European Central Bank (2012). Virtual Currency Schemes. https://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf
Glaser, F., Zimmarmann, K., Haferhorn, M., Weber, M.C., & Siering, M., (2014). Bitcoin Asset or currency? Revealing users’ hidden intentions. In: Twenty Second European Conference on Information Systems, ECIS 2014, Tel Aviv, pp. 1–14. Available at SSRN: https://ssrn.com/abstract=2425247
Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431-437.
Guttormsen, A. G. (1999). Forecasting weekly salmon prices: risk management in fish farming. Aquaculture Economics & Management, 3(2), 159-166.
Ji, Q., Bouri, E., Gupta, R., & Roubaud, D. (2018). Network causality structures among Bitcoin and other financial assets: A directed acyclic graph approach. The Quarterly Review of Economics and Finance, 70, 203-213.
Johansen, S. (1995). Likelihood-based inference in cointegrated vector autoregressive models. Oxford University Press on Demand.
Katsiampa, P. (2017). Volatility estimation for Bitcoin: A comparison of GARCH models. Economics Letters, 158, 3-6.
Keating, J. W. (1990). Identifying VAR models under rational expectations. Journal of Monetary Economics, 25(3), 453-476.
Klein, T., Thu, H. P., & Walther, T. (2018). Bitcoin is not the New Gold–A comparison of volatility, correlation, and portfolio performance. International Review of Financial Analysis, 59, 105-116.
Kokkinaki, A., Sapuric, S., & Georgiou, I. (2018, October). The relationship between bitcoin trading volume, volatility, and returns: A study of four seasons. In European, Mediterranean, and Middle Eastern Conference on Information Systems (pp. 3-15). Springer, Cham.
Kumar, V., Leone, R. P., & Gaskins, J. N. (1995). Aggregate and disaggregate sector forecasting using consumer confidence measures. International Journal of Forecasting, 11(3), 361-377.
Kurihara, Y., & Fukushima, A. (2018). How does price of Bitcoin volatility change?. International Research in Economics and Finance, 2(1), 8-14.
Kutlar, A. (2000). Ekonometrik zaman serileri. Gazi Publication.
Lütkepohl, H. (2005). New introduction to multiple time series analysis. Springer Science & Business Media.
Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Unpublished manuscript, retrieved from https://Bitcoin.org/Bitcoin.pdf.
Park, S., Jang, K., & Yang, J. S. (2021). Information flow between bitcoin and other financial assets. Physica A: Statistical Mechanics and its Applications, 566, 1-13.
Polasik, M., Piotrowska, A. I., Wisniewski, T. P., Kotkowski, R., & Lightfoot, G. (2015). Price fluctuations and the use of bitcoin: An empirical inquiry. International Journal of Electronic Commerce, 20(1), 9-49.
Raskin, M., & Yermack, D. (2018). Digital currencies, decentralized ledgers and the future of central banking. In P. Conti-Brown, & M.L. Rosa (Eds.), Research handbook on central banking. (pp. 474-486). Edward Elgar Publishing.
Sims, C. A. (1980). Macroeconomics and reality. Econometrica: journal of the Econometric Society, 48(1), 1-48.
Tari, R. (2010). Ekonometri, (Extended 6th Edition). Umuttepe Publications.
Temuçin, T., & Temiz, I. (2016). Türkiye Dis Ticaret Ihracat Hacminin Projeksiyonu: Holt-Winters ve Box-Jenkins Modellerinin Bir Kiyaslamasi. Suleyman Demirel University The Journal of Faculty of Economics and Administrative Sciences, 21(3), 937-960.
Yermack, D. (2015). Is Bitcoin a real currency? An economic appraisal. In D. L. K. Chuen (Ed) Handbook of digital currency (1st pp. 31-43). Academic Press.
Zeng, T., Yang, M., & Shen, Y. (2020). Fancy Bitcoin and conventional financial assets: Measuring market integration based on connectedness networks. Economic Modelling, 90, 209-220.
Mr. Semih Yilmazer
Faculty of Economics and Administrative Sciences, Yildiz Technical University - Turkey
semihy@yildiz.edu.tr
Dr. Asli Aybars
Faculty of Business Administration, Marmara University - Turkey
Dr. Gözde Bozkurt
Faculty of Economics and Administrative Sciences, Beykent University - Turkey