{"title":"Volatile safe-haven asset: Evidence from Bitcoin","authors":"James Yae , George Zhe Tian","doi":"10.1016/j.jfs.2024.101285","DOIUrl":null,"url":null,"abstract":"<div><p>Despite high volatility, Bitcoin is known to offer diversification benefits through its relatively low correlation with stock markets. Unlike traditional safe-haven assets, Bitcoin prices strongly respond to time-varying correlations and diversification benefits. We find that a decrease (an increase) in correlation between Bitcoin and S&P500 index returns strongly predicts higher (lower) Bitcoin returns the next day. Under the classical mean–variance framework, we develop a stylized model of Bitcoin prices utilizing extreme disagreement among heterogeneous Bitcoin investors. When our model is calibrated to the observed predictability of Bitcoin returns, the model simultaneously explains the lack of predictability in traditional safe-haven assets such as gold and long-term treasuries.</p></div>","PeriodicalId":48027,"journal":{"name":"Journal of Financial Stability","volume":"73 ","pages":"Article 101285"},"PeriodicalIF":6.1000,"publicationDate":"2024-05-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Financial Stability","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1572308924000706","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Despite high volatility, Bitcoin is known to offer diversification benefits through its relatively low correlation with stock markets. Unlike traditional safe-haven assets, Bitcoin prices strongly respond to time-varying correlations and diversification benefits. We find that a decrease (an increase) in correlation between Bitcoin and S&P500 index returns strongly predicts higher (lower) Bitcoin returns the next day. Under the classical mean–variance framework, we develop a stylized model of Bitcoin prices utilizing extreme disagreement among heterogeneous Bitcoin investors. When our model is calibrated to the observed predictability of Bitcoin returns, the model simultaneously explains the lack of predictability in traditional safe-haven assets such as gold and long-term treasuries.
期刊介绍：
The Journal of Financial Stability provides an international forum for rigorous theoretical and empirical macro and micro economic and financial analysis of the causes, management, resolution and preventions of financial crises, including banking, securities market, payments and currency crises. The primary focus is on applied research that would be useful in affecting public policy with respect to financial stability. Thus, the Journal seeks to promote interaction among researchers, policy-makers and practitioners to identify potential risks to financial stability and develop means for preventing, mitigating or managing these risks both within and across countries.
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