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Article
Dynamic spillovers between the term structure of interest rates, bitcoin, and safe-haven currencies
Financial Innovation
  • David Y. Aharon, Ono Academic College
  • Zaghum Umar, Zayed University
  • Xuan Vinh Vo, University of Economics Ho Chi Minh City
ORCID Identifiers

0000-0002-0425-2665

Document Type
Article
Publication Date
12-1-2021
Abstract

This study examines the connectedness between the US yield curve components (i.e., level, slope, and curvature), exchange rates, and the historical volatility of the exchange rates of the main safe-haven fiat currencies (Canada, Switzerland, EURO, Japan, and the UK) and the leading cryptocurrency, the Bitcoin. Results of the static analysis show that the level and slope of the yield curve are net transmitters of shocks to both the exchange rate and its volatility. The exchange rate of the Euro and the volatility of the Euro and the Canadian dollar exchange rate are net transmitters of shocks. Meanwhile, the curvature of the yield curve and the Japanese Yen, Swiss Franc, and British Pound act mainly as net receivers. Our static connectedness analysis shows that Bitcoin is mainly independent of shocks from the yield curve’s level, slope, and curvature, and from any main currency investigated. These findings hint that Bitcoin might provide hedging benefits. However, similar to the static analysis, our dynamic analysis shows that during different periods and particularly in stressful times, Bitcoin is far from being isolated from other currencies or the yield curve components. The dynamic analysis allows us to observe Bitcoin’s connectedness in times of stress. Evidence supporting this contention is the substantially increased connectedness due to policy shocks, political uncertainty, and systemic crisis, implying no empirical support for Bitcoin’s safe-haven property during stress times. The increased connectedness in the dynamic analysis compared with the static approach implies that in normal times and especially in stressful times, Bitcoin has the property of a diversifier. The results may have important implications for investors and policymakers regarding their risk monitoring and their assets allocation and investment strategies.

Publisher
Springer Science and Business Media LLC
Disciplines
Keywords
  • Bitcoin,
  • Connectedness,
  • Cryptocurrency,
  • Currencies,
  • Curvature,
  • Diebold and Yilmaz,
  • Forex,
  • Safe haven,
  • Term structure slope
Scopus ID
85112007957
Creative Commons License
Creative Commons Attribution 4.0 International
Indexed in Scopus
Yes
Open Access
Yes
Open Access Type
Gold: This publication is openly available in an open access journal/series
Citation Information
David Y. Aharon, Zaghum Umar and Xuan Vinh Vo. "Dynamic spillovers between the term structure of interest rates, bitcoin, and safe-haven currencies" Financial Innovation Vol. 7 Iss. 1 (2021)
Available at: http://works.bepress.com/zaghum-umar/48/