Could Bitcoin Provide Portfolio Benefits for Long-Term Investors?
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In this paper we aim to identify how the volatility from the major U.S. markets affect the volatility of Bitcoin and its diversification potential. To do this we have calculated GARCH volatilities derived into the Generalized Spillover Index for Bitcoin, gold, crude oil, the U.S. dollar index and S&P 500. The horizon of the data examined in this paper extends from November 2017 to February 2022 for the purpose of investigating the volatility spillovers before, during and after the financial shock of Covid-19 in addition to the whole period. We also completed a rolling window analysis to investigate the development of volatility spillovers. The results indicate a stronger connectedness between the markets during the Covid-19 crisis, which suggests a stronger connectedness throughout periods of financial turmoil. During Covid-19 the S&P 500, Gold and Crude Oil had a large influence on the volatility of Bitcoin. However, the findings of this research suggest Bitcoin as the most independent out of the five markets on average, receiving the least amount of volatility spillover out of the other markets. So, the thesis suggests there could be long-term portfolio benefits for investors.