Connectedness between conventional and digital assets amid COVID-19 pandemic: Evidence from G7 stocks, Oil and Bitcoin
Keywords:G7 indices, Bitcoin, oil, COVID-19, VAR model, impulse function response.
This study examines the connectedness between G7 indices, Bitcoin, and oil during the COVID-19 pandemic. Based on daily data from January 1, 2016 to April 1, 2021, a vector auto-regression model and an impulse response function are employed to illustrate the time path of these assets following own and cross-shocks. Our study exhibits the considerable effect of the pandemic on increasing directional causalities and time-varying connectedness between G7 indices, Bitcoin, and oil. The findings indicate that G7 indices’ own shocks almost immediately lower forecasts of stock return urging the diversification to reduce risk. Moreover, the significant negative response of oil to shocks amid the pandemic reflects its high vulnerability during mitigated periods. Unlike other countries, we find a relative resilience of Bitcoin to S&P 500 shocks, and we consequently recommend Bitcoin as a diversifier to American
investors during the pandemic. Our results are useful for both investors and policymakers who need to think ahead, rather than waiting to have a downside G7 returns movement in turbulent periods.