Volatility forecasting, downside risk, and diversification benefits of Bitcoin and oil and international commodity markets

A comparative analysis with yellow metal

Khamis Al Yahyaee, Walid Mensi, Idries Mohammad Wanas Al-Jarrah, Atef Hamdi, Sang Hoon Kang

Research output: Contribution to journalArticle

Abstract

This study examines the diversification and hedging properties of Bitcoin (BTC) and gold assets for oil and S&P GSCI investors. We model and forecast the volatility performance of the pairs BTC–oil, gold–oil, BTC–S&P GSCI, and gold–GSCI using five bivariate DCC-GARCH family models, two popular forecasting measures (MSE and MAE), the Diebold and Mariano (1995) test, and different risk measures (value-at-risk, expected shortfall, semivariance, and regret) for different portfolios. We find that BTC and gold provide diversification benefits for oil and S&P GSCI. Moreover, by comparing the fitting and forecast performances of the five GARCH models, we find that the standard GARCH model is the best for the gold–oil and BTC–S&P GSCI pairs, while the HYGARCH model is the best for the BTC–oil and gold–S&P GSCI pairs regardless of the time horizon. Finally, we find strong evidence of hedging effectiveness and downside risk reductions, confirming the importance of BTC and gold in oil and S&P GSCI portfolio management.

Original languageEnglish
Pages (from-to)104-120
Number of pages17
JournalNorth American Journal of Economics and Finance
Volume49
DOIs
Publication statusPublished - Jul 1 2019

Fingerprint

Downside risk
Comparative analysis
Commodity markets
Diversification benefits
Volatility forecasting
Metals
Oil
GARCH model
Assets
Diversification
Value at risk
Expected shortfall
Risk measures
Portfolio management
Investors
Time horizon
Bivariate GARCH
Hedging effectiveness
Risk reduction
Hedging

Keywords

  • Bitcoin
  • Commodity markets
  • Downside risk
  • Forecasting
  • Multivariate GARCH models

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Volatility forecasting, downside risk, and diversification benefits of Bitcoin and oil and international commodity markets : A comparative analysis with yellow metal. / Al Yahyaee, Khamis; Mensi, Walid; Al-Jarrah, Idries Mohammad Wanas; Hamdi, Atef; Kang, Sang Hoon.

In: North American Journal of Economics and Finance, Vol. 49, 01.07.2019, p. 104-120.

Research output: Contribution to journalArticle

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