GARCH-Class Analysis of Bitcoin—A Comparison with Gold

Abstract

Bitcoin establishes itself as an investment asset and is often named the New Gold. This study, however, shows that the two assets are different in univariate and multivariate aspects. First, we construct GARCH, APARCH and APARCH-in-Mean models to analyze and compare conditional variance properties of Bitcoin and Gold, and find Bitcoin does not have the significant inverse leverage effect as Gold. Then we apply the BEKK-GARCH model to estimate time-varying conditional correlations between Bitcoin and Gold with other major market indexes. The results show that Bitcoin can not hedge the market risk, especially when a crash occurs. So we conclude that Bitcoin and Gold feature fundamentally different properties as assets and linkages to equity markets.