The dynamic correlation between cryptocurrency and Thai financial assets with the impact of global macro-level variables

This study aims to investigate the dynamic correlation between cryptocurrency and Thai financial assets, taking into account the impact of global macro-level variables. The study employs the Generalized Auto Regressive Conditional Heteroskedasticity (GARCH) model and the Dynamic Conditional Correlation (DCC) model, as well as its extended form, the DCC with Mixed Data Sampling (MIDAS) model, to analyze the links between high-frequency asset data and low-frequency macroeconomic variables. The study focuses on three major cryptocurrencies based on their market capitalization, including Bitcoin (BTC), Ethereum (ETH), and Binance (BNB), and also considers the Royalton CRIX Crypto Index (CRIX) as a representation of the cryptocurrency market. In terms of Thai financial assets, two well-known assets, stock (SET) and bond (BOND) are examined. Additionally, the linear regression is used to examine the effects of macro-level variables on their correlation. Lastly, in order to make use of our results to help investor optimize investment decision-making, the study determine the optimal weight ratio and hedging effectiveness between cryptocurrency and Thai financial asset.The study highlights the significance of considering macroeconomic variables when analyzing volatility. It also examines the short- and long-term correlations between traditional assets and cryptocurrencies, finding that during uncertain times like the COVID-19 pandemic, the correlation between stocks and cryptocurrencies is stronger. Additionally, the research shows that macroeconomic volatility significantly impacts asset correlation. The findings indicate that an increase in macroeconomic volatility leads to a higher correlation between stock-cryptocurrency and bond-cryptocurrency pairs. These results emphasize the importance of considering macroeconomic variables when analyzing asset returns' volatility to make informed investment decisions. Finally, the potential of cryptocurrency as a hedge, diversifier, or safe haven against traditional Thai assets is explored, with results indicating that Bitcoin has potential as a hedge against Thai equities and bonds.