Bitcoin and gold as hedging instruments for ASEAN-5 stock market

Abstract

The development of hedging strategies using commodity and cryptocurrency has been a topic of academic and practical interest. An optimal strategy increases the efficiency of risk management and minimizes the costs of hedging. This paper examines time-varying optimal hedging ratios for the ASEAN-5 stock market, hedged with gold and bitcoin. The best hedging instrument was determined using regression and DCC-GARCH model. The analyses resulted in hedge effectiveness criteria. The daily data covered the period from January 1, 2019 to December 31, 2021. The findings were robust to the distribution assumption and to the use of DCC-GARCH model in examining different refit. Finally, this study provides an invaluable starting point to examine the dynamic hedging.