Bitcoin and Gold USD: An Empirical Study of Asymmetric Volatility and the Spillover Effect

Abstract

This research investigates the asymmetric volatility and spillover effects between Bitcoin and Gold USD using sophisticated econometric models, namely EGARCH (Exponential Generalized Autoregressive Conditional Heteroskedasticity) and DCC-GARCH (Dynamic Conditional Correlation GARCH). The EGARCH model demonstrates divergent volatility patterns for the two assets, with Bitcoin displaying a strong leverage effect, whereby negative shocks considerably enhance volatility compared to positive shocks, indicative of its speculative and high-risk characteristics. In contrast, Gold USD exhibits positive asymmetry, displaying heightened volatility in reaction to positive shocks, which aligns with its function as a safe-haven asset. The DCC-GARCH model elucidates the dynamic correlation and spillover effects between the two markets, demonstrating how volatility in one asset affects the other, especially during times of economic uncertainty. The findings highlight Bitcoin's increased vulnerability to negative news and Gold USD's resilience during market declines, providing essential insights for portfolio diversification, hedging methods, and risk management. This study enhances comprehension of the dependency and volatility dynamics between digital and conventional financial assets, offering essential insights for investors and regulators managing the intricacies of contemporary financial markets.