EXAMINING VOLATILITY SPILLOVERS: THE RELATIONSHIP BETWEEN BITCOIN AND U.S. INDUSTRIAL SECTOR
Keywords:Bitcoin, U.S. industrial sector, Generalized Vector Autoregressive (VAR), Framework, Volatility spillover, Portfolio diversification
This research study investi-gates the volatility spillover effects between Bitcoin and the U.S. Industrial sector, using data from January 2010, June 2019. This research area is significant due to the growing interest in understanding Bitcoin's influence on various financial markets. Notably, prior studies have examined Bitcoin's spillover effects but haven't conclusively determined its predictability in relation to the U.S. Industrial sector. The study employs the Generalized Vector Autoregressive (VAR) Framework, following the approach of Diebold and Yilmaz. This method is grounded in forecast-error variance decompositions derived from Vector Autoregressions (VARs), providing a robust analytical tool for examining inter-market relationships. The findings of this research indicate a limited connection and influence between Bitcoin and the U.S. Industrial sector. Specifically, the study observes an insignificant impact of Bitcoin market volatility on the U.S. Industrial sector. This result is crucial as it contributes to the understanding of Bitcoin’s potential as a hedging tool and its effectiveness in managing financial downturns. Furthermore, the study highlights Bitcoin's role in offering significant portfolio diversification and risk hedging benefits, particularly for U.S. domestic and foreign investors.
Copyright (c) 2023 Akaisha Akhlaq, Noshaba Zulfiqar, Faiza Saleem
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