Volatility Spillovers Across CBDC Attention and Stock Market Volatility

Kuznichenko, Polina

doi:10.2139/ssrn.4152316

Cited by 3 publications

(7 citation statements)

References 14 publications

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“…Because of the likelihood of controlled risk effect [ 84 ], showed that CBDCs provide hedging effects to other assets. This is in line with our results which reiterate the fact that there is less correlation and little causality with other assets making it a better option to prevent systemic risk [ 55 ]. In Band 2 however, CBDCAI has the highest ABS index depicting the level of correlation to the assets as opposed to 0.02 in Band 3 irrespective of the decreasing causality.…”

Section: Resultssupporting

confidence: 92%

“…This hedging effect, however, dwindles away in the medium-to long-term because investors start to move to using CBDCs to diversify against risk. Implicitly, our findings are in line with [ 55 , 74 ] who showed that financial markets are less sensitive to CBDCAI.…”

Section: Resultssupporting

confidence: 92%

“…Also, we use the Central Bank Digital Currency attention index (CBDCAI) because the growing risk from these digital assets could be easily transferred to banks and financial institutions due to the nature of the financial system [ 54 ]. [ 55 ] also found an interdependent relationship between Central Bank Digital Currency (CBDC) and stock markets and noted that the strong correlation is based on the CBDC attention index. The CBDCs, although, have not been adopted by countries yet, news about such centralised government securities that intend to promote the financial security of banks could have impacts on asset connectedness.…”

Section: Introductionmentioning

confidence: 99%

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Connectedness in cross-assets and digital assets attention indices

Barson,

Owusu Junior

2023

Heliyon

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Section: Resultssupporting

confidence: 92%

Section: Resultssupporting

confidence: 92%

Section: Introductionmentioning

confidence: 99%

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Connectedness in cross-assets and digital assets attention indices

Barson,

Owusu Junior

2023

Heliyon

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“…While the CBDC is meant to be a stable currency backed by the Federal Reserve, if regulated too loosely, volatility could be a large issue (Kuznichenko, 2022). The best example of the problem of volatility is the Waves stablecoin, which is a somewhat hybrid between a digital dollar and cryptocurrency.…”

Section: Resultsmentioning

confidence: 99%

“…Although highly unlikely, if the CBDC is not practically tested and not heavily regulated by the Federal Reserve, it could fall into the same trap as the Waves stablecoin. Speculation in the Forex market could also potentially cause volatility and destabilize a CBDC, as well as volatility reception from equity markets (Kuznichenko, 2022).…”

Section: Resultsmentioning

confidence: 99%

The Digital Dollar Is Coming and May Be Problematic

Beckerman¹

2023

AJACC

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Purpose: The aim of the study is to examine the potential problems with the new proposed Central Bank Digital Currency (CBDC) known as the digital dollar. Methodology: Qualitative research design examining pertinent and timely studies and articles about several aspects of the CBDC. Kuznichenko’s study used the Vector Autoregressive model to examine volatility spillover to the CBDC from equity markets. Most studies researched on the subject were Qualitative as well. Findings: The CBDC, although providing benefits like payment efficiency, cross-border transactions, and less illegal activity than a cryptocurrency, also has potential downsides. During periods of financial panic, people can run from banks to the digital dollar. These bank runs could be even worse because whereas normal bank runs cause deposits to be moved from one bank to another, in this case, deposits would be moved out of the banking system entirely, into the digital dollar. Another theoretical problem with the digital dollar is a potential lack of individual privacy. Because the government would have a permanent blockchain record of all transactions and access to a person’s finances, this could cause potential government overreach. Lastly, although unlikely, if the Federal Reserve does not regulate the CBDC to the extent that it needs to be, volatility spillover from equity and forex markets could problematic to the stability of the digital dollar. Recommendations: Theoretically, policymakers can manage risk using the knowledge that the CBDC can exacerbate financial panics and instability. Increased regulation would be necessary to avoid potential volatility and bank runs during financial panics.

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Analysis of the impact of central bank digital currency on stock markets: Dynamics and implications

Frolov,

Ivasenko,

V. Dykha

et al. 2023

Banks and Bank Systems

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The purpose of the study is to explore the influence of central bank digital currency on stock markets. To realize the purpose, the TVP-VAR model was built, which determines the impact of volatility of the CBDC attention index (CBDCAI) on the volatility of stock market indices. The study uses a time-varying vector autoregressive model that analyzes weekly data from the first week of January 2015 to the first week of July 2023. The endogenous vector to be assessed by VAR contains CBDCAI and stock market indices of different countries (France: CAC 40, The United States of America: S&amp;P 500, Germany: DAX 40, United Kingdom: FTSE 100, China: SSEC, The Netherlands AEX 25, Switzerland: SMI 20, Japan: Nikkei 225, India: NIFTY 50, Brazil: BVSP, South Korea: KOSPI). The results of the TVP-VAR model show that compared to stock market indices, CBDCAI appeared to be relatively independent and isolated. Interdependence and mutual influence between the digital currency market of central banks and stock markets were also revealed. In addition, CBDC functions primarily as a volatility absorber rather than a source of volatility. Despite the overall ability of the CBDC market to absorb fluctuations in volatility, it may also change its function with the widespread adoption of central bank digital currencies in many countries.

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Volatility Spillovers Across CBDC Attention and Stock Market Volatility

Cited by 3 publications

References 14 publications

Connectedness in cross-assets and digital assets attention indices

Connectedness in cross-assets and digital assets attention indices

The Digital Dollar Is Coming and May Be Problematic

Analysis of the impact of central bank digital currency on stock markets: Dynamics and implications

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