Revisiting the Valuable Roles of Traditional and Modern Currencies for the G7 Equity Investments: A Dependence and Hedging Comparison

This study attempts to re-examine the diversification, safe haven and hedge properties of traditional (oil and gold) and modern (Bitcoin and Ethereum) financial assets adduced as a diversifier, a hedge and a safe haven for equity investments in the G7 economies under different market conditions. A variety of linear and non-linear econometric methods are employed to explore this dependence. The empirical evidence supports gold as an undisputable diversifier for equity investments in the G7 markets in the overall times. Cryptocurrencies have a valuable safe haven potential, while traditional currencies don’t, particularly during the Covid-19 crisis. Further, suitability of the optimal hedge asset depends on market conditions and individual countries, where traditional currencies present the best hedge in the normal conditions. However, in stress periods, Bitcoin presents the best hedge for stocks of the G7 European and the UK countries, although Ethereum is optimal for hedging for the U.S. and Canada.