Safe-haven Effectiveness of Cryptocurrency: Evidence from Stock Markets of COVID-19 worst-hit African Countries

Raifu, Isiaka Akande and Ogbonna, Ahamuefula E (2021): Safe-haven Effectiveness of Cryptocurrency: Evidence from Stock Markets of COVID-19 worst-hit African Countries.

Abstract

The study assessed the hedge or safe-haven property of five cryptocurrencies for stocks of three COVID-19 worst-hit African countries. We address two main concerns bordering on the predictive capacity of African stocks for cryptocurrency returns, and the safe-haven property that cryptocurrencies could offer to African stocks. A distributed lag model, with explicitly incorporated salient statistical features, was adopted based its efficient management of parameter proliferation and estimation biases. We ascertained the model’s in-sample predictability and evaluate its out-of-sample forecasts performance in comparison with historical average model, using Clark and West statistics. While African stocks significantly predicted cryptocurrency returns, the cryptocurrency-stocks nexus revealed the diversifier and safe-haven property of cryptocurrencies for African stocks in periods of normalcy and crisis/pandemic, respectively. Our predictive model outperformed the historical average model in the out-of-sample. Our results may be sensitive to cryptocurrency-stocks nexus, sample periods but not the out-of-sample forecast horizons.

• Item Type: MPRA Paper
• Language: English
• Keywords: COVID-19; Cryptocurrency; Distributed Lag Model; Hedge; Safe-Haven
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions

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