Interlinkages of cryptocurrency and stock markets during COVID-19 pandemic by applying a TVP-VAR extended joint connected approach
ISSN: 0144-3585
Article publication date: 25 March 2022
Issue publication date: 18 April 2023
Abstract
Purpose
The purpose of this paper is to study the interlinkages between the cryptocurrency and stock market by characterizing their connectedness starting from January 1, 2018 to December 31, 2021.
Design/methodology/approach
The author employs a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach.
Findings
The pandemic shocks appear to have influences on the system-wide dynamic connectedness, which reaches a peak during the COVID-19 pandemic. Net total directional connectedness suggests that each cryptocurrency and stock have a heterogeneous role, conditional on their internal characteristics and external shocks. In particular, Bitcoin and Binance Coin are reported as the net receiver of shocks, while the role of Ethereum shifts from receivers to transmitters. As for the stock market, the US stock market stays persistent as net transmitters of shocks, while the Asian stock market (including Hong Kong and Shanghai) are the two consistent net receivers. During the COVID-19 pandemic shock, pairwise connectedness reveals that cryptocurrencies can explain the volatility of the stock markets with the impact most severe at the beginning of 2020.
Practical implications
Insightful knowledge about key antecedents of contagion among these markets also help policymakers design adequate policies to reduce these markets' vulnerabilities and minimize the spread of risk or uncertainty across these markets.
Originality/value
The author is the first to investigate the interlinkages between the cryptocurrency and the stock market and assess the influences of uncertain events like the COVID-19 health crisis on the dynamic interlinkages among these two markets. The author employs the TVP-VAR combined with an extended joint connectedness approach.
Keywords
Acknowledgements
Funding: This paper was supported by National Economics University.
Citation
Ha, L.T. (2023), "Interlinkages of cryptocurrency and stock markets during COVID-19 pandemic by applying a TVP-VAR extended joint connected approach", Journal of Economic Studies, Vol. 50 No. 3, pp. 407-428. https://doi.org/10.1108/JES-01-2022-0055
Publisher
:Emerald Publishing Limited
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