Examining the safe-haven and hedge capabilities of gold and cryptocurrencies: A GARCH and regression quantiles approach in geopolitical and market extremes

Abstract

This paper examines gold and cryptocurrencies' hedge and safe-haven capabilities against various downturns, including the COVID-19 pandemic and Geopolitical Risks (GPR), across different market conditions. The study covers a sample period from 2013 to 2021 at a daily frequency, employing the GARCH model and quantile regression with binary variables.The empirical results indicate that neither gold nor cryptocurrencies can act as strong hedges against infectious disease pandemics. However, gold, Bitcoin, and Ethereum exhibit weak safe-haven abilities during geopolitical risks.Using regression quantiles, the study finds that gold demonstrates a strong safe-haven against low and high Infectious Disease Epidemic Market Volatility (IDEMV) during extremely bearish and bullish markets. In contrast, Bitcoin and Ethereum act as strong safe havens only against low IDEMV during extreme bearish markets. Gold also shows a strong hedge propriety against extreme geopolitical events, while cryptocurrencies provide a weak hedge.Overall, gold exhibits strong safe-haven properties against low and high Geopolitical tensions, while cryptocurrencies' hedging and safe-haven abilities vary across markets. These findings convey insights for investors and guidance to supervisors on the evolution of gold, Bitcoin, and Ethereum as safe-haven and hedge instruments during both bearish and bullish markets.

Keywords

• Cryptocurrencies
• Gold
• Safe-haven
• Hedge
• COVID-19 pandemic geopolitical risks