Dynamic frequency relationships between bitcoin, oil, gold and economic policy uncertainty index

Abstract

Purpose

This paper aims to examine the frequency of co-movements and asymmetric dependencies between bitcoin (BTC), gold, Brent crude oil and the US economic policy uncertainty (EPU) index.

Design/methodology/approach

The authors use a wavelet approach and a quantile-on-quantile regression (QQR) method.

Findings

The results show a positive interdependence between BTC and commodity price returns at both medium and low frequencies over the sample period. In contrast, the dependence is negative between BTC and EPU index at both medium and low frequencies. Furthermore, the co-movements between markets are more pronounced during crises. The results show that strategic commodities and EPU index have the ability to predict BTC price returns at both medium- and long-terms. The QQR method reveals that higher gold returns tend to predict higher/lower BTC returns when the market is in a bullish/bearish state. Moreover, lower gold returns tend to predict lower (higher) BTC returns when the market is in a bearish (bullish) state (positive (negative) relationship). The lower Brent returns tend to predict higher/lower BTC returns when the market is in a bullish/bearish state. High Brent quantiles tend to predict the lower BTC returns in its extremely bearish states. Finally, higher and lower EPU changes tend to predict lower and higher BTC returns when the market is in a bearish/bullish state (negative relationship).

Originality/value

There is generally a lack of understanding of the linkages between BTC, gold, oil and uncertainty index across multiple frequencies. This is, as far as the authors know, the first attempt to apply both the wavelet approach and a QQR method to examine the multiscale linkages among markets under study. The findings should encourage the relevant policymakers to consider these co-movements which vary over time and in duration when setting up regulations that deem to enhance the market efficiency.

Citation

Hazgui, S., Sebai, S. and Mensi, W. (2022), "Dynamic frequency relationships between bitcoin, oil, gold and economic policy uncertainty index", Studies in Economics and Finance, Vol. 39 No. 3, pp. 419-443. https://doi.org/10.1108/SEF-05-2021-0165