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Kua, Kim Tai (2024) Bitcoin as hedging alternatives from gold, stocks and USD - GARCH model for risk/volatility analysis. [Dissertation (University of Nottingham only)]

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Abstract

There is increased interest in the capability of cryptocurrency as investment instrument, especially interest on Bitcoin which classified as “digital gold”. This paper sets out to examines the hedging performance of gold, S&P 500, Nasdaq and USD (USDX) against fluctuations in Bitcoin prices. Furthermore, this study compares four alternative regression specifications for estimating the optimal hedge ratio and measuring the hedge effectiveness: Single Equation Method Ordinary Least (SEMOLS), Bivariate Vector Autoregression (VAR), Vector Error-Correction Method (VECM) and CCC- MGARCH models.

The results shows that VAR and VECM models are effective in portfolio analysis and risk management as Bitcoin can be used as hedge against Gold and S&P 500 Index, whereas SEMOLS and MGARCH CCC models are effective in analyzing the hedging effectiveness of Bitcoin against Nasdaq and USD (USDX) portfolios. Therefore, Bitcoin can be added to the list of instruments alongside gold, S&P 500, Nasdaq and USD (USDX) to balance and minimize risks. The results implies that the initial hedge ratio shall adjust downward as time passes and wider hedge horizon. Based on our findings, Bitcoin is suitable to be added as hedging instruments, especially for short-middle term horizon risk management during the recent crises and worsen macroeconomic outlooks had led to greater market volatilities.

Item Type:	Dissertation (University of Nottingham only)
Depositing User:	Kua, Kim
Date Deposited:	02 Aug 2024 08:30
Last Modified:	02 Aug 2024 08:30
URI:	https://eprints.nottingham.ac.uk/id/eprint/76706

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