Return spillover across Bitcoin markets and foreign exchange pairs dominated in major trading currencies

Abstract

This study examines the dynamic nature of return spillover across Bitcoins indices and foreign exchange pairs denominated in 6 major trading currencies. The findings of spillover index, Spillover Asymmetry Measure (SAM) and frequency connectedness methodologies indicate that return spillover across Bitcoin markets and foreign exchange pairs dominated in six major trading currencies is very low. The intra-market return spillover for the Bitcoin markets and foreign exchange pairs is found to be significant. Presence of asymmetry in the return spillover is also found. Evidence indicates that return spillover are dominated in short horizon, with significant spillover occurring within 4 days of an event. The low integration of Bitcoin markets with the foreign exchange markets provide significant implication for portfolio diversification and risk minimization.