Journal of Economics and Financial Analysis, 7 (1), pp. 43-59, [2023]
URI: https://ojs.tripaledu.com/jefa/article/view/81/92

The Spill-Over Effects of Cryptocurrencies on Equity and Bonds Market


University of Limpopo, South Africa


DOI: http://dx.doi.org/10.1991/jefa.v7i1.a58

Abstract

This study examines the extent to which crypto assets have moved to the mainstream by estimating the potential for spillovers crypto on bond and equity markets using daily data on price volatility and returns. The analysis reveals that the coefficients of the constant variance term, the ARCH and the GARCH parameters are positive and statistically significant at the 1% level across all models. In respect of the mean equation, the results suggest that the spill-over effects of bitcoin on equities and long-term bonds are ambiguous. Spillovers from price volatility of the oldest and most popular crypto asset, Bitcoin, to the S&P 500 and MSCI emerging markets indices have increased by about 12-16 percentage points since the onset of the COVID-19 pandemic, while those from its returns have increased by about 8-10 percentage points. This clearly indicates that the persistence of volatility shocks, as represented by the sum of the ARCH and GARCH parameter is large. Moreover, this suggests that the effect of today’s shock remains in the forecasts of variance for many periods in the future.

Keywords

GARCH Model; Cryptocurrencies; Financial Markets.

JEL Classification

B41, C01, C58, D53.

Full Text:

PDF

References

Al-Shboul, M., Assaf, A. and Mokni, K. (2022) a. When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spill-over among cryptocurrencies before and during the Covid-19 pandemic. International Review of Financial Analysis, 83.

Anderson, L.R., and Holt, C.A. (1997). Information cascades in the laboratory. The American Economic Review, 87(5), 847-862.

Banerjee, A. (1992). A simple model of herd behaviour. The Quarterly Journal of Economics, 107(3), 797-817.

Bikhchandani, S., Hirshleifer, D., and Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of political economy, 100(5), 992-1026.

Bouri, E., Gupta, R., Tiwari, A.K., and Roubaud, D. (2019). Does Bitcoin spill-over to emerging and developed stock markets? Journal of Behavioral and Experimental Finance, 23, 124-131.

Bouri, E., Molnár, P., Azzi, G., Roubaud, D., and Hagfors, L.I. (2018). On the hedge and safe-haven properties of Bitcoin: Is it really-more than a diversifier? Finance Research Letters, 26, 145–150.

Corbet, S., Lucey, B., and Yarovaya, L. (2018). Datestamping the Bitcoin and Ethereum bubbles. Finance Research Letters, 26, 81-88.

Fama, E.F. (1991). Efficient capital markets: II. The Journal of Finance, 46(5), 1575-1617.

Goldman A. I. (1999). Knowledge in a social world. Oxford University Press.

Hassan, M.K., Hasan, M.B., Halim, Z.A., Maroney, N. and Rashid, M.M. (2022). Exploring the dynamic spill-over of cryptocurrency environmental attention across the commodities, green bonds, and environment-related stocks. North American Journal of Economics and Finance, 61.

Inzamam, U.H. (2022). Time-frequency comovement among green financial assets and cryptocurrency uncertainties. Review of Banking, Finance and Monetary Economics, 52(1).

Ji, Q., Bouri, E., Gupta, R., and Wang, S. (2021). Spill-over effects of Bitcoin on US equity markets during the COVID-19 pandemic. Finance Research Letters, 38.

Khalfaoui, R., Mefteh-Wali, S., Dogan, B., and Ghosh, S. (2023). Extreme spill-over effect of Covid-19 pandemic-related news and cryptocurrencies on green bond markets: A quantile connectedness analysis. International Review of Financial Analysis, 86.

Lo, A.W. (2005). Reconciling efficient markets with behavioral finance: The adaptive markets hypothesis. The Journal of Investment Consulting, 7(2), 21-44.

Maitra, D., Ur Rehman, M., Ranjan, D.S., and Hoon, K.S. (2022). Do cryptocurrencies provide better hedging? Evidence from major equity markets during Covid-19 pandemic. North American Journal of Economics & Finance, 62.

Malkiel, B.G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59-82.

Sovbetov, Y. (2018). Factors Influencing Cryptocurrency Prices: Evidence from Bitcoin, Ethereum, Dash, Litcoin, and Monero. Journal of Economics and Financial Analysis, 2(2), 1-27. doi:http://dx.doi.org/10.1991/jefa.v2i2.a16




Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.