Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions

• DOI: 10.1016/j.frl.2017.02.009
• Publication Date: 2017-02-07T13:17:23Z
• Authors: Elie Bouri; Rangan Gupta; Aviral Kumar Tiwari; David Roubaud
• Keywords: Quantile regressions; Global uncertainty; 0502 economics and business; 05 social sciences; [SHS.GESTION]Humanities and Social Sciences/Business administration; [SHS.GESTION] Humanities and Social Sciences/Business administration; Wavelet; Bitcoin

We examine whether Bitcoin can hedge global uncertainty, measured by the first principal component of the VIXs of 14 developed and developing equity markets. After decomposing Bitcoin returns into various frequencies, i.e., investment horizons, and given evidence of heavy-tails, we employ quantile regression. We reveal that Bitcoin does act as a hedge against uncertainty: it reacts positively to uncertainty at both higher quantiles and shorter frequency movements of Bitcoin returns. Further, we use quantile-on-quantile regression and identify that hedging is observed at shorter investment horizons, and at both lower and upper ends of Bitcoin returns and global uncertainty.