Quantifying the hedge and safe-haven properties of bond markets for cryptocurrency indices

Abstract

Purpose

This study quantified the hedge and safe haven features of bond markets for multiple cryptocurrency indices from June 2014 to April 2021 to highlight whether bond markets offer hedging facilities to uncertainty indices of cryptocurrencies.

Design/methodology/approach

The authors employed the methodology of Baur and McDermott (2010) and AGDCC-GARCH model to measure the hedge and safe-haven characteristics of three bond markets (BBGT, SPGB and SKUK) for three uncertainty indexes of cryptocurrencies (UCRPR, UCRPO and ICEA).

Findings

The authors find that bond markets are neither hedge nor safe havens except for SKUK which is a safe haven investment for cryptocurrency indices and offers substantial diversification during the periods of economic fragility. In addition, the hedge effectiveness of SPGB outperforms other bonds during crisis periods and provides sufficient diversification potential for cryptocurrency indices.

Practical implications

The findings are important for policymakers, regulatory bodies, financial firms and investors in assessing hedge and safe haven characteristics of bond markets against cryptocurrency indices.

Originality/value

Employing the novel methodology of AGDCC-GARCH with three different bond markets and three uncertainty indices of cryptocurrencies, the current study adds to the existing strand of literature in terms of quantifying hedge and safe-haven attributes of bond markets for cryptocurrency uncertainty indexes.

Citation

Karim, S., Naeem, M.A., Mirza, N. and Paule-Vianez, J. (2022), "Quantifying the hedge and safe-haven properties of bond markets for cryptocurrency indices", Journal of Risk Finance, Vol. 23 No. 2, pp. 191-205. https://doi.org/10.1108/JRF-09-2021-0158