Impact of commodities and global stock prices on the idiosyncratic risk of Bitcoin during the COVID-19 pandemic

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In times of exogenous systemic shocks, such as the COVID-19 pandemic, it is important to identify hedge or safe haven assets. Therefore, this paper analyzes changes in the idiosyncratic risk of Bitcoin in a portfolio of commodities and global stocks. For this purpose, the M-GARCH model employed considers the interdependence among all the portfolio assets by using a time-varying asset pricing framework. This framework measures the impact of commodities and global stock prices as sources of systemic risk for Bitcoin returns before and after the COVID-19 pandemic. The evidence suggests that during the COVID-19 pandemic, the effects of changes in commodities and global prices on the idiosyncratic risk of Bitcoin were statistically significant. The idiosyncratic risk of Bitcoin measured as a percentage of total variance not accounted for by the proposed model rose from 86.06% to 95.05% during the pandemic. These results are in line with previous studies regarding the properties of Bitcoin as a hedge or safe haven asset for a portfolio composed of commodities and global stocks.

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    • Figure 1. Bitcoin (BTC) and the Bloomberg Commodity Index (BCOM) from February 10, 2016 to March 2, 2021
    • Figure 2. Bitcoin (BTC) and the S&P Global Broad Market Index (BMI) from February 10, 2016 to March 2, 2021
    • Figure 3. Conditional variance decomposition: Bitcoin returns from February 10, 2016 to March 2, 2021
    • Table 1. Descriptive statistics for Bitcoin, the Bloomberg Commodity Index, and the S&P Global Broad Market Index
    • Table 2. T-test for distinctions in unique or idiosyncratic risk of Bitcoin for the pre-COVID-19 period and the post-COVID period
    • Table 3. Monthly average of unique and systemic risk of the Bitcoin attributable to shocks from the Bloomberg Commodity Index and the S&P Global Broad Market Index
    • Table 4. Breusch–Godfrey Lagrange multiplier tests for serial correlation
    • Conceptualization
      Edgardo Cayón Fallon, Julio Sarmiento
    • Data curation
      Edgardo Cayón Fallon, Julio Sarmiento
    • Investigation
      Edgardo Cayón Fallon, Julio Sarmiento
    • Methodology
      Edgardo Cayón Fallon, Julio Sarmiento
    • Formal Analysis
      Edgardo Cayón Fallon
    • Software
      Edgardo Cayón Fallon, Julio Sarmiento
    • Validation
      Edgardo Cayón Fallon, Julio Sarmiento
    • Writing – original draft
      Edgardo Cayón Fallon, Julio Sarmiento
    • Writing – review & editing
      Edgardo Cayón Fallon, Julio Sarmiento