Does Bitcoin Hedge Industry Credit Risk? A Comparison with Gold
- Saqib Farid
- saqib.farid@umt.edu.pk
- Department of Banking & Finance-HSM University of Management and Technology, Lahore, Pakistan.
- Abdul Rafay
- abdul.rafay@umt.edu.pk
- Professor Department of Banking & Finance-HSM University of Management and Technology, Lahore, Pakistan.
- (Corresponding Author)
- Quratulain Zafar
- qurat.zafar@umt.edu.pk
- Assistant Professor Department of Banking & Finance-HSM University of Management and Technology, Lahore, Pakistan.
Submitted
November 22, 2023
Accepted
November 22, 2023
Accepted
November 22, 2023
- Received
- 13 October 2023
- Revised
- 1 March 2024
- Accepted
- 29 May 2024
Abstract
Credit default swaps are considered indicators of default probability and used to measure credit risk in different sectors of the US industry. This study examines the effectiveness of hedging and safehaven options for US sectoral credit default swap indices, focusing on whether Bitcoin or gold can serve as effective assets for mitigating credit risk in US industries. The GARCH model with dummy variables and quantile regression are employed to estimate the hedging and safe haven properties of Bitcoin and gold. The findings indicate that both Bitcoin and gold can be utilized as effective hedging and safe haven assets for US industry credit risk. Furthermore,the study highlights the superior hedging potential and safe-haven properties of Bitcoin compared to gold. Overall, the results suggest that investors and portfolio managers can effectively utilize Bitcoin and gold to protect against credit risk in different US sectors, regardless of market and economic conditions.
Keywords
Credit default swaps
Bitcoin,
gold
hedge
safe haven
This work is licensed under LJB.
- Citation
Farid, S., Rafay, A., & Zafar, Q. (2024). Does Bitcoin Hedge Industry Credit Risk?
A Comparison with Gold. The Lahore Journal of Business, 11(2), 115-152.
- References
2: Areal, N., Oliveira, B., & Sampaio, R. (2015). When times get tough, gold is golden. European Journal of Finance, 21(6), 507–526.
3: Bampinas, G., & Panagiotidis, T. (2015). On the relationship between oil and gold before and after financial crisis: Linear, nonlinear and time-varying causality testing. Studies in Nonlinear Dynamics and Econometrics, 19(5), 657–668.
4: Baur, D. G., & Lucey, B. M. (2010). Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold. Financial Review, 45(2), 217–229.
5: Baur, D. G., & McDermott, T. K. (2010). Is gold a safe haven? International evidence. Journal of Banking and Finance, 34(8), 1886–1898.
6: Baur, D. G., & Glover, K. (2012). The destruction of a safe haven asset? Applied Finance Letters 1(1), 8–15.
7: Baur, D. G., Lee, A. D., & Hong, K. (2015). Bitcoin: Currency or investment? https://www.researchgate.net/publication/314299661_Bitcoin_Currency_or_Investment
8: BenSaïda, A. (2023). Safe haven property of gold and cryptocurrencies during COVID-19 and Russia–Ukraine conflict. Annals of Operations Research, 1–34.
9: Benzennou, B., ap Gwilym, O., & Williams, G. (2020). Commonality in liquidity across options and stock futures markets. Finance Research Letters, 32, 101096.
10: Bessembinder, H., Kahle, K. M., Maxwell, W. F., & Xu, D. (2008). Measuring abnormal bond performance. Review of Financial Studies, 22(10), 4219–4258.
Read More