Measuring Quantile Dependence and Testing Directional Predictability between Bitcoin, Altcoins and Traditional Financial Assets

53 Pages Posted: 2 Feb 2021

See all articles by Shaen Corbet

Shaen Corbet

Dublin City University ; University of Waikato - Management School

Paraskevi Katsiampa

Sheffield University Management School

Chi Keung Marco Lau

Teesside University

Date Written: December 31, 2020

Abstract

This paper studies causal relationships and the potential of improving conditional quantile forecasting between Bitcoin and seven altcoin markets as well as between Bitcoin and three mainstream assets, namely gold, oil, and the S&P500, by applying the Granger-causality in distribution and in quantiles tests. We find significant bidirectional causality between Bitcoin and all altcoins and assets considered in the two distribution tails. An enhanced forecast of Bitcoin price returns is thus derived by conditioning on altcoins or assets and vice versa during extreme market conditions. However, under normal market conditions the results for the centre of the distribution of the Bitcoin price returns conditional on altcoins depend on both the altcoin considered and quantile under investigation. We also find evidence that Bitcoin is not isolated from financial markets, while this developing financial asset is a strong safe-haven for oil and a weak safe-haven for S&P500, but it cannot be considered as either a weak or strong safe-haven for gold. Our results reveal a more complete relationship between Bitcoin and altcoins as well as financial assets than was previously considered.

Suggested Citation

Corbet, Shaen and Katsiampa, Paraskevi and Lau, Chi Keung Marco, Measuring Quantile Dependence and Testing Directional Predictability between Bitcoin, Altcoins and Traditional Financial Assets (December 31, 2020). Available at SSRN: https://ssrn.com/abstract=3758495 or http://dx.doi.org/10.2139/ssrn.3758495

Shaen Corbet (Contact Author)

Dublin City University ( email )

Dublin 9
Ireland

University of Waikato - Management School ( email )

Hamilton
New Zealand

Paraskevi Katsiampa

Sheffield University Management School ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Chi Keung Marco Lau

Teesside University ( email )

Tees Valley
Middlesbrough
Middlesbrough, Middlesbrough TS1 3BX
United Kingdom

HOME PAGE: http://https://research.tees.ac.uk/en/persons/chi-lau

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