Asymmetric interdependencies between large capital cryptocurrency and Gold returns during the COVID-19 pandemic crisis

• Published in: International review of financial analysis 2021-07, Vol.76, p.101773, Article 101773
• Main Authors: González, Maria de la O., Jareño, Francisco, Skinner, Frank S.
• Format: Article
• Language: English
• Subjects: Connectedness; COVID-19 crisis; Cryptocurrencies; Gold; NARDL
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2021.101773

This article explores asymmetric interdependencies between the twelve largest cryptocurrency and Gold returns, over the period January 2015 – June 2020 within a NARDL (nonlinear autoregressive distributed lag) framework. We focus our analysis on the epicentre of the first wave of the COVID-19 pandemic from March 2020 to June 2020. During this crisis, cryptocurrencies are more correlated and more of them have returns that are cointegrated with Gold returns. Moreover, cryptocurrencies develop a long-term as well as a short-term asymmetric response to Gold returns during the COVID-19 period where most cryptocurrency returns respond more to negative changes and exhibit more persistence with Gold returns. Overall, our most important result confirms that the connectedness between Gold price returns and cryptocurrency returns increase in economic turmoil, such as during the COVID-19 crisis. •Connectedness between Gold price returns and cryptocurrency returns increase during the COVID-19 crisis.•Cryptocurrencies develop a long-term as well as a short-term asymmetric response to Gold returns during the COVID-19 period.•Most cryptocurrency returns respond more to negative change and exhibit more persistence with Gold during the Covid-19 crisis.•Tether is less connected to Gold suggesting that Tether will perform best in a diversification rather than a hedging role.