Who raised from the abyss? A comparison between cryptocurrency and stock market dynamics during the COVID-19 pandemic

Caferra, Rocco; Vidal-Tomás, David

doi:10.1016/j.frl.2021.101954

Cited by 104 publications

(61 citation statements)

References 37 publications

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“…Most studies either concentrate on cryptocurrencies in isolation [52][53][54] or combined with other assets [10,18,50,51]. Prior studies that combine cryptocurrencies with other assets mostly look out for hedge, safe haven, and diversification opportunities [10,15,18,51]; spillover sentiments which are greatly influenced by major market events [50]; and financial contagion of cryptocurrencies [55]. ese studies assess either relationships or causality between and among financial assets without employing the transfer entropy.…”

Section: Empirical Reviewmentioning

confidence: 99%

“…As a result, pertinent inferences for portfolio diversification, policy decisions, investing risk, and risk management schemes in cryptocurrencies and global equities could be well accentuated. e emergence of cryptocurrencies has warranted several studies [10,18,[50][51][52][53][54][55]. However, the quantity of information that flows between cryptocurrencies and other financial assets are less captured by prior literature.…”

Section: Introductionmentioning

confidence: 99%

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Information Flow between Global Equities and Cryptocurrencies: A VMD‐Based Entropy Evaluating Shocks from COVID‐19 Pandemic

2021

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The world has witnessed the adverse impact of the COVID-19 pandemic. Accordingly, it is expected that information transmission between equities and digital assets has been altered due to the hostile impact of the pandemic outbreak on financial markets. As a result, the ensuing perverse risk among markets is presumed to rise during severe uncertainties occasioned by the COVID-19 pandemic. The impetus of this study is to examine the degree of asymmetry and nonlinear directional causality between global equities and cryptocurrencies in the frequency domain. Hence, we employ both the variational mode decomposition (VMD) and the Rényi effective transfer entropy techniques. Analyses of the study are presented for three sample periods; these are the full sample period, the pre-COVID-19 period, and the COVID-19 pandemic period. We gauge a mixture of asymmetric and nonlinear bidirectional and unidirectional causality between global equities and cryptocurrencies for the sample periods. However, the COVID-19 pandemic period appears to be driving the estimates for the full sample period, which indicates a negative flow. Thus, the direction and significance of the information flow between the markets for the full sample correspond to the one observed during the COVID-19 pandemic period. We, consequently, establish a significant directional, dynamical, and scale-dependent information flow between global equities and cryptocurrencies. Notwithstanding, throughout the study samples, we mainly find a negative significant information flow from global equities to cryptocurrencies. We detect that most cryptocurrencies exhibit similar behaviour of information flow to global equities for each of the sample periods. The outcome provides pertinent signals to investors with diverse investment horizons who would want to diversify, hedge, or employ cryptocurrencies as a safe haven for global equities during uncertainties, specifically the COVID-19 pandemic.

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Section: Empirical Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Information Flow between Global Equities and Cryptocurrencies: A VMD‐Based Entropy Evaluating Shocks from COVID‐19 Pandemic

2021

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“…However, such measures have a huge economic cost—economic activities have been halted throughout the world, sending the GDP growth of major economies into negative territory in the first half of this year. Disrupted supply chains, anemic demands and pandemic-induced panic have also wreaked havoc on the global capital market, with the majority of assets, excluding a handful of safe-havens such as gold and grains [ 1 , 2 ], experiencing price drops to various degrees and increasingly volatile price swings. Meanwhile, multiple circuit breakers have been triggered in stock and futures markets in US, UK, Germany and France, among other countries.…”

Section: Introductionmentioning

confidence: 99%

COVID-19 and financial market response in China: Micro evidence and possible mechanisms

Wang

Zhang

et al. 2021

PLoS ONE

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This paper uses event study based on the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model to study the impact of the COVID-19 outbreak on China’s financial market. It finds that the pandemic had an overall significant and negative impact on the stock prices of firms listed on SSE, SZSE and ChiNext. However, such impact appeared to be heterogeneous across industries, affecting listed firms in industries such as pharmaceutical and telecommunications positively, but those in services industries such as accommodation, catering, and commercial services negatively. Apparently, a crisis for some had been an opportunity for others. In addition, this paper seeks to understand the micro mechanism behind the heterogeneity of pandemic shock from the perspective of firms’ financial position. It finds that listed firms with higher debt level were hit harder, whereas those with more net cash flow had displayed higher resilience against the blow of the pandemic. However, the opposite pattern is found among those listed on ChiNext and in industries severely devastated by the pandemic. These findings have policy implications in terms of preventing systemic financial risks and facilitating recovery during pandemic-induced economic downturns. It also helps investor adjust investment strategies, hedge against risks, and secure gains when the market conditions in general are unfavorable.

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“…These include the theories based on SM movement, and SM interdependence, which has primarily been drawn from the one price (LOP) law and the Modern Portfolio Theory (MPT). The main purpose of the theories is to underline portfolio diversifications in the global markets (Caferra & Vidal-Tom as, 2021;Williamson, 2021). The expectation theory suggests that the investors' analogous expectations are genuine indicators of their investments.…”

Section: Introductionmentioning

confidence: 99%

Co-movement dynamics of US and Chinese stock market: evidence from COVID-19 crisis

Song

Xia

Basheer

et al. 2021

Economic Research-Ekonomska Istraživanja

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This paper aims to examine the co-movement between the two economic powers, namely the USA and China. The authors are mainly interested in examining the dynamics of co-movements during, and in the pre-covid periods. Additionally, they have aimed to examine the volatility spillover between USA and China, during and in the pre-covid periods. In order to achieve the research-based objectives, advanced econometrics models have been applied to the data from July1, 2010, to April 30, 2021. The results show that the sample market is integrated in the long run. The results also indicate that the behaviour of the Chinese market is same as the US market, and offers negligible opportunities for investors for diversification during this time. The findings indicate that the Ganger Causality between the stock markets during crisis is significantly higher than the pre-crisis period. The results of EGARCH model confirm the presence of asymmetric volatility spillover effects between the US and Chinese markets, during the considered time periods. This study also examines the co-movement in China, grounded upon the robust approach that facilitates examining the dependence structure between the sample variables. The findings offer valuable understanding for investors who are looking for investment diversification opportunities worldwide.

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Who raised from the abyss? A comparison between cryptocurrency and stock market dynamics during the COVID-19 pandemic

Cited by 104 publications

References 37 publications

Information Flow between Global Equities and Cryptocurrencies: A VMD‐Based Entropy Evaluating Shocks from COVID‐19 Pandemic

Information Flow between Global Equities and Cryptocurrencies: A VMD‐Based Entropy Evaluating Shocks from COVID‐19 Pandemic

COVID-19 and financial market response in China: Micro evidence and possible mechanisms

Co-movement dynamics of US and Chinese stock market: evidence from COVID-19 crisis

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