Research Article
The Dynamic Relation between Bitcoin Volatility and Stock Volatility: DCC-GARCH Approach
@INPROCEEDINGS{10.4108/eai.17-6-2022.2322628, author={Chenyang Xu}, title={The Dynamic Relation between Bitcoin Volatility and Stock Volatility: DCC-GARCH Approach}, proceedings={Proceedings of the International Conference on Information Economy, Data Modeling and Cloud Computing, ICIDC 2022, 17-19 June 2022, Qingdao, China}, publisher={EAI}, proceedings_a={ICIDC}, year={2022}, month={10}, keywords={component: bitcoin; stock market; dcc-garch; optimal portfolio}, doi={10.4108/eai.17-6-2022.2322628} }- Chenyang Xu
Year: 2022
The Dynamic Relation between Bitcoin Volatility and Stock Volatility: DCC-GARCH Approach
ICIDC
EAI
DOI: 10.4108/eai.17-6-2022.2322628
Abstract
Bitcoin's performance during the COVID-19 pandemic has drawn a lot of attention, with many researchers wondering whether bitcoin can act as a hedge against the stock market, and how exactly the COVID-19 pandemic has changed bitcoin's connection to the world. This paper aims to investigate the dynamic conditional volatility correlation between bitcoin and stock markets before and after the COVID-19 outbreak. Bitcoin data and stock market data are collected from Coindesk and Invest, respectively. DCC-GARCH model is built to measure the dynamic correlation between bitcoin and stock markets. As a result, it shows the overall dynamic conditional correlations increase after the COVID-19 outbreak. Based on the dynamic correlations, this paper further conducts investment portfolio analysis for bitcoin and stock markets. The GARCH model is used to extract the volatilities of bitcoin and stock markets and calculate the dynamic optimal weight of bitcoin in the portfolio. Finally, this paper finds that the dynamic relation between bitcoin and the stock markets changes before and after the COVID-19 outbreak, and this change dramatically affects the optimal weight of bitcoin in the stock-bitcoin investment portfolio.
