Author(s)

Jinyan Wang

Corresponding Author

Jinyan Wang

ABSTRACT

As the Covid-19 pandemic breaks out and devastates economic markets, investors have been looking for a save heaven asset to avoid risks and uncertainties imposed by the pandemic. Cryptocurrencies, a digital asset that has gained traction in recent decades, have been examined by many scholars on their capability of hedging. Therefore, this paper will empirically examine the impact of the COVID-19 pandemic on cryptocurrency returns and volatility, with a particular focus on bitcoin and daily cases of COVID-19. The study applies time series models, including ARMAX and GARCH, to examine how Covid-19 impacts the Bitcoin returns and volatility. The study also uses the VAR model to investigate the hedging capability of Bitcoin on the stock market. The findings of the research demonstrate that Covid-19 has no substantial impact on Bitcoin returns but its impacts on Bitcoin volatility are significant. The findings also reveal that the larger the percentage of portfolio investments in bitcoin, the larger the magnitude and the shorter the duration of the shock of the Covid-19 pandemic will be. The study suggests that investors should not consider cryptocurrencies as a hedge option at the beginning of Covid-19 breakout but can consider that later to decrease portfolio volatility.

KEYWORDS

Cryptocurrency, Covid-19, Hedging, Returns, Volatility