FTX fiasco and global equity markets: evidence from event study approach
Journal of Financial Economic Policy
ISSN: 1757-6385
Article publication date: 27 June 2023
Issue publication date: 11 October 2023
Abstract
Purpose
This study aims to investigate the impact of FTX bankruptcy on the global stock markets, including both the developed and emerging markets, as per the Morgan Stanley Capital Investment (MSCI) country classification.
Design/methodology/approach
Using the daily closing prices for leading stock market indices of all 47 countries in the MSCI market classification, comprising 23 developed markets and 24 emerging markets, the event study methodology is used to examine the impact of the event on developed markets, emerging markets and overall global equity markets.
Findings
The study finds heterogeneous effects of the event on different countries. Results indicate that overall global equity markets experienced a statistically significant positive cumulative average abnormal returns of 15.8533% in the complete event window of 28 days from t − 7 to t + 20. The authors conclude that traditional global equity markets can be used as a hedge against potential financial risk posed by unfavorable events in the cryptocurrency markets and have safe haven properties.
Practical implications
The study emphasizes the global financial system’s interconnectedness and the potential of traditional equity markets to hedge risks in the cryptocurrency market. The findings are relevant for investors seeking portfolio diversification and mitigating their exposure to potential risks in the cryptocurrency market.
Originality/value
To the best of the authors’ knowledge, the present study is the earliest attempt to comprehensively examine the impact of the bankruptcy of the world’s fourth largest cryptocurrency exchange, FTX, on the global equity markets.
Keywords
Acknowledgements
The authors would like to express their sincere appreciation to the editor, Dr Franklin Mixon, and the anonymous reviewers for their valuable feedback and meticulous review. Their expertise and thoroughness significantly improved the quality of this paper. They are grateful for their time and dedication to ensuring the rigor and clarity of their work.
Statements and declarations:
Funding: The authors hereby declare that no grants or any other kind of funding have been received for the submission of this manuscript.
Competing interests: The authors have no competing interests, neither financial nor nonfinancial, to disclose concerning the subject matter of this manuscript.
Erratum: It has come to the attention of the publisher that the article, Priyanka Goyal and Pooja Soni, “FTX fiasco and global equity markets: evidence from event study approach”, published in Journal of Financial Economic Policy, Vol. ahead-of-print No. ahead-of-print, included an incorrect layout in Table 2 which made the data difficult to interpret. The correct Table 2 has now been published in the article.
The publisher sincerely apologises for this error and for any inconvenience caused.
Citation
Goyal, P. and Soni, P. (2023), "FTX fiasco and global equity markets: evidence from event study approach", Journal of Financial Economic Policy, Vol. 15 No. 4/5, pp. 396-407. https://doi.org/10.1108/JFEP-04-2023-0100
Publisher
:Emerald Publishing Limited
Copyright © 2023, Emerald Publishing Limited