Abstract
In this study, we compare the safe-haven properties of Bitcoin, gold, and the commodity index against world, developed, emerging, USA, and Chinese stock market indices for the period 20 July 2010-22 February 2018. We apply the wavelet coherency approach and show that the overall dependence between Bitcoin/gold/commodities and the stock markets is not very strong at various time scales, with Bitcoin being the least dependent.
We study the diversification potential at the tail of the return distribution through wavelet value-at-risk (VaR) and reveal that the degree of co-movement between gold and stock returns affects the portfolio's VaR level. Specifically, the benefits of diversification vary in the time-frequency space, with Bitcoin exhibiting a superiority over both gold and commodities.
Our findings are useful for investors and financial advisors searching for the best asset among Bitcoin, gold, and commodities to hedge extreme negative movements in stock market indices, while accounting for the heterogeneity in the horizons of investors.