Tail behavior of Bitcoin, the dollar, gold and the stock market index

Abstract

This paper studies whether Bitcoin can be classified as a currency, a commodity or an investment asset. Inspired by the movement that tail behavior is the key feature to determine the property of asset and for market participants to perceive the asset, I compare the tail behavior of daily return on Bitcoin to that of daily return on the US dollar, gold and the stock market index. Based on the conditional autoregressive Value at Risk proposed by Engle and Manganelli (2004), I find the similarity of the tail behavior between Bitcoin and the dollar, the stock market index with respect to contemporaneous correlation. Additionally, the tail of stock market return turns out to be associated with the risk premium on Bitcoin's return while Bitcoin is proved to be the element of the time-varying investment opportunity set on the basis of Merton's (1973) ICAPM setting. These findings suggest that Bitcoin is traded as an alternative for a medium of exchange and a means of investment, being far from a commodity. (C) 2020 Elsevier B.V. All rights reserved.