Can fiat currencies really hedge Bitcoin? Evidence from dynamic short-term perspective

Whereas much research has largely investigated the safe haven, diversifier and hedge proprieties of cryptocurrency, very few papers have analyzed hedging issue cryptocurrency with other assets. As such, this paper attempts to investigate possibility if Bitcoin can be hedged by selected fiat currencies (EUR, JPY GBP) as prices experienced high persistent volatility. To do so, we compute optimal ratios between over period 02/02/2012–30/11/2017 based on VAR-DCC-GARCH model, VAR-ADCC-GARCH model VAR-component GARCH-DCC model. A rolling window analysis is employed establish out-of-sample one-step-ahead forecasts dynamic conditional correlations different This leads time-varying thus cross-hedging Bitcoin/fiat currency markets. The empirical results clearly show under specifications, implying a behavior relationship such For all proposed models, are rather characterized trending downward study. also display which lead an ongoing regular demand for rebalancing positions specifications. matter fact, using various models take into account aspects volatility correlation structures allows better implement strategies.