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How does COVID-19 influence dynamic spillover connectedness between cryptocurrencies? Evidence from non-parametric
Syed Ali Raza1, Nida Shah1, Khaled Guesmi2
1Department of Business Administration, IQRA University, Karachi 75300, Pakistan.
Finance Research Letters
|December 5, 2022
Summary
The COVID-19 pandemic significantly impacted cryptocurrency connectedness, with Bitcoin and Ethereum acting as major shock transmitters. This analysis reveals significant spillover effects among digital assets during the crisis.
Area of Science:
- Financial Economics
- Computational Finance
- Cryptocurrency Markets
Background:
- The COVID-19 pandemic introduced unprecedented volatility into global financial markets.
- Understanding the interconnectedness of cryptocurrencies is crucial for risk management.
Purpose of the Study:
- To investigate the impact of the COVID-19 pandemic on the connectedness of major cryptocurrencies.
- To identify key transmitters and receivers of financial shocks within the crypto market during the pandemic.
Main Methods:
- Time-Varying Parameter Vector Autoregression (TVP-VAR) for connectedness analysis.
- Causality-in-Quantile tests to assess directional spillover effects.
Main Results:
- Cryptocurrencies exhibit characteristics of both net receivers and transmitters of shocks.
- Bitcoin and Ethereum were identified as the primary transmitters of shocks.
- The COVID-19 pandemic significantly induced spillover connectedness among cryptocurrencies, particularly between the 0.1 and 0.8 quantiles.
Conclusions:
- The findings highlight the dynamic interconnectedness of cryptocurrencies and their sensitivity to global events like the COVID-19 pandemic.
- Results provide valuable insights for investors and policymakers navigating the cryptocurrency landscape.
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