Does Contagion Effect of Bubbles and Causality Exist Among Bitcoin, Gold, and Oil Markets?

Abstract

The author studies the explosive behaviors, causality relationships, and contagion effects between three financial markets using the daily closing prices of Bitcoin, gold, and West Texas Intermediate (WTI) oil prices for a sample period from July 19, 2010 to September 10, 2021. By employing the generalized supremum augmented Dickey-Fuller (GSADF) approach, the author finds significant evidence of bubble explosive behaviors in the Bitcoin and WTI prices—but not in the gold prices—and these periods mostly match with the periods of quantitative easing and financial stress. Besides, the test shows several short and long episodes of unilateral causal linkages from Bitcoin returns to oil price changes under homoscedasticity and heteroskedasticity assumptions. The results show no evidence for the contagion effect of bubbles between cryptocurrency and oil markets during the sample period.