The dynamic relationship between bitcoin and the foreign exchange market: A nonlinear approach to test causality between bitcoin and currencies

【Author】 Palazzi, Rafael Baptista; Raimundo Junior, Gerson de Souza; Klotzle, Marcelo Cabus

【Source】FINANCE RESEARCH LETTERS

【影响因子】9.848

【Abstract】This paper investigates whether bitcoin has a nonlinear relationship with six currencies: euro, pound sterling, Swiss franc, renminbi, yen, and ruble, each denominated in US dollars. It employs the nonparametric causality test proposed by Diks and Panchenko (2006) and applies a multivariate filtering approach using BEKK-GARCH residuals to control the conditional heteroskedasticity on daily log-returns from July 2010 to April 2020. We also split the bitcoin dataset into two samples, one before and one after a structural break. Results reveal a direct impact of the euro on bitcoin. However, in the post-break sample, there is only an effect from renminbi to bitcoin. Findings shed light on the nonlinear relationship dynamics among currencies and whether fiat currencies can help predict bitcoin's behavior.

【Keywords】Bitcoin; Exchange rate; Nonlinear causality; BEKK-GARCH filtering

【发表时间】2021 OCT

【收录时间】2022-01-01

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