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Information Flow between Bitcoin and Other Investment Assets

by Sung Min Jang 1,†, Eojin Yi 2,†, Woo Chang Kim 1 and Kwangwon Ahn 3,*
1
Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), 291 Daehak-ro, Yuseong-gu, Daejeon 34141, Korea
2
Moon Soul Graduate School of Future Strategy, KAIST, 291 Daehak-ro, Yuseong-gu, Daejeon 34141, Korea
3
Department of Industrial Engineering, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul 03722, Korea
*
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Entropy 2019, 21(11), 1116; https://doi.org/10.3390/e21111116
Received: 9 October 2019 / Revised: 8 November 2019 / Accepted: 11 November 2019 / Published: 14 November 2019
(This article belongs to the Section Multidisciplinary Applications)
This paper studies the causal relationship between Bitcoin and other investment assets. We first test Granger causality and then calculate transfer entropy as an information-theoretic approach. Unlike the Granger causality test, we discover that transfer entropy clearly identifies causal interdependency between Bitcoin and other assets, including gold, stocks, and the U.S. dollar. However, for symbolic transfer entropy, the dynamic rise–fall pattern in return series shows an asymmetric information flow from other assets to Bitcoin. Our results imply that the Bitcoin market actively interacts with major asset markets, and its long-term equilibrium, as a nascent market, gradually synchronizes with that of other investment assets. View Full-Text
Keywords: bitcoin; Granger causality; symbolic time series analysis; transfer entropy bitcoin; Granger causality; symbolic time series analysis; transfer entropy
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Jang, S.M.; Yi, E.; Kim, W.C.; Ahn, K. Information Flow between Bitcoin and Other Investment Assets. Entropy 2019, 21, 1116.

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