A Study On Price Co-movement Between Bitcoin And LME Nonferrous Metals

Commodities and Bitcoin both play a role in diversifying risk due to their low correlation with traditional financial assets such as stocks.From this perspective,this paper hopes to explore whether there is price co-movement between nonferrous metal commodities represented by LME copper,aluminum,nickel,lead,zinc futures and Bitcoin,an emerging financial asset.Based on this,this paper hopes to further explore the inherent co-movement mechanism between the two types of financial assets if price co-movement exists.Firstly,this paper uses Hasbrouck's Information Share Model to quantitatively calculate the price contribution of different markets in the price discovery process to determine if there is price co-movement between different types of financial assets.This paper found that price co-movement between Bitcoin and LME aluminum,nickel,lead,zinc futures exist.Specifically,the price of Bitcoin and LME zinc futures move synchronously,but lagging the price movements of aluminum,nickel,lead futures.In order to further explore the price co-movement mechanism between Bitcoin and LME aluminum,nickel,lead,zinc futures,based on Economic Fundamental Hypothesis and Market Contagion Hypothesis,this paper uses quantile-on-quantile regression model to explore the relationship between asset correlation and market condition and found that there is relationship between asset correlation and market condition.The relationship is more pronounced in extreme market conditions.In addition,co-movements between the two kinds of financial assets are asymmetric.Market condition of the leading asset in price co-movement exerts a greater influence on asset correlation.This paper also considers the impact of EPU on asset correlation and found that the regression conclusion is basically the same after adding EPU as a control variable as that when economic uncertainty is not taken into account,but the impact of market condition on asset correlation is more significant.The conclusions of this paper echo those in the existing literature that both Bitcoin and commodities can be used as risk diversifiers for traditional financial assets.However,investors should be careful not to include Bitcoin and LME copper,aluminum,nickel,lead,zinc futures in their portfolios at the same time.Otherwise,the risk diversifying effect will be weakened.