Empirical Evidence of the Relationships Between Bitcoin and Stock Exchanges: Case of Return and Volatility Spillover

Abstract

Especially with the sharp increase in the trading volume of Bitcoin, researchers have focused on the topic of cryptocurrencies. Besides the high risks they carry, these vehicles give investors the opportunity of gaining high returns. For this reason, many investors consider cryptocurrencies as an investment vehicle and include them into their portfolios, notably Bitcoin. Bitcoin is a new alternative for investors who desire to invest in different assets besides traditional ones. This new investment vehicle is also used for portfolio diversification. But, to provide the desired benefits, the relationships between the bitcoin and asset or assets that will be included in the portfolio. Therefore, the purpose of this study is to analyze the return and volatility relationships between Bitcoin and stock markets from different regions. For this purpose, Diebold and Yilmaz spillover test are applied to the return series. The empirical results indicate both return and volatility spillovers between the Bitcoin and the selected stock markets that should be considered in portfolio and risk management processes.