Can Cryptocurrencies Hedge Oil Price Fluctuations? a Pandemic Perspective

42 Pages Posted: 8 Apr 2022

See all articles by Barbara Bedowska-Sojka

Barbara Bedowska-Sojka

Poznań University of Economics and Business

Agata Kliber

Poznan University of Economics

Abstract

The article aims to verify whether cryptocurrencies can hedge extreme price movements of Brent oil. The COVID-19 pandemic revealed that the prices of oil are strongly dependent on economic uncertainty, as well as on the mobility factor. We analyse the Brent oil prices from February 10, 2020,  to February 10, 2022. As potential hedges, we consider Bitcoin, BNB, Ether, Tether, and USDCoin, top-five cryptocurrencies by market capitalization. We explore their potential to protect the oil investment using two approaches. The first one concentrates on the movement of prices, while the second - on minimising the portfolio volatility. We use three modelling techniques: asymmetric causality in prices, threshold vector-autoregressive model for returns, and dynamic conditional correlation analysis. We show that although stablecoins offer the best protection against the down movements of oil prices, they do not allow to reduce the investment volatility.

Keywords: Cryptocurrencies, Brent Oil, stablecoins, threshold VAR, asymmetric causality, DCC-MSV

Suggested Citation

Bedowska-Sojka, Barbara and Kliber, Agata, Can Cryptocurrencies Hedge Oil Price Fluctuations? a Pandemic Perspective. Available at SSRN: https://ssrn.com/abstract=4075624 or http://dx.doi.org/10.2139/ssrn.4075624

Barbara Bedowska-Sojka

Poznań University of Economics and Business ( email )

Al. Niepodległości 10
Poznań, Great Poland 61-875
Poland

Agata Kliber (Contact Author)

Poznan University of Economics ( email )

Poznan, 60-967
Poland

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