Does natural gas volatility affect Bitcoin volatility? Evidence from the HAR-RV model

While volatility spillover is a vital research area in financial economics (due to its importance for risk valuation and portfolio diversification strategies), the volatility linkage between Bitcoin and electricity/energy markets has not received adequate attention. As the Bitcoin mining cost comes...

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Bibliographic Details
Published in:Applied economics 2024, Vol.ahead-of-print (ahead-of-print), p.1-12
Main Authors: Omura, Akihiro, Cheung, Adrian (Wai Kong), Su, Jen Je
Format: Article
Language:English
Subjects:
Bitcoin
Digital currencies
Diversification
Economic analysis
Economic theory
Electricity
energy commodities
Financial economics
HAR
Natural gas
realized volatility
Spillover effect
Valuation
Volatility
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Summary:While volatility spillover is a vital research area in financial economics (due to its importance for risk valuation and portfolio diversification strategies), the volatility linkage between Bitcoin and electricity/energy markets has not received adequate attention. As the Bitcoin mining cost comes mainly from electricity (which is highly dependent on natural gas), we hypothesize that natural gas is a non-trivial Bitcoin price volatility driver and aim to test if this is the case. Specifically, we employ a widely used model called the HAR-RV model to assess volatility spillover across Bitcoin and natural gas using high-frequency data. We find a spillover effect from natural gas to Bitcoin, and the positive (negative) component of natural gas volatility stabilizes (destabilizes) Bitcoin volatility. The spillover effect is further examined and confirmed using an out-of-sample approach.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2023.2168608