Tail spillover effects between cryptocurrencies and uncertainty in the gold, oil, and stock markets

Walid Mensi (), Mariya Gubareva (), Hee-Un Ko (), Xuan Vinh Vo () and Sang Hoon Kang ()
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Walid Mensi: Sultan Qaboos University
Mariya Gubareva: Universidade de Lisboa, Lisbon School of Economics and Management (ISEG), Research Centre in Economic and Organisational Sociology (SOCIUS) / Research in Social Sciences and Management (CSG)
Hee-Un Ko: Korea Housing and Urban Guarantee Corporation
Xuan Vinh Vo: University of Economics Ho Chi Minh City
Sang Hoon Kang: Pusan National University

Financial Innovation, 2023, vol. 9, issue 1, 1-27

Abstract: Abstract This study investigates tail dependence among five major cryptocurrencies, namely Bitcoin, Ethereum, Litecoin, Ripple, and Bitcoin Cash, and uncertainties in the gold, oil, and equity markets. Using the cross-quantilogram method and quantile connectedness approach, we identify cross-quantile interdependence between the analyzed variables. Our results show that the spillover between cryptocurrencies and volatility indices for the major traditional markets varies substantially across quantiles, implying that diversification benefits for these assets may differ widely across normal and extreme market conditions. Under normal market conditions, the total connectedness index is moderate and falls below the elevated values observed under bearish and bullish market conditions. Moreover, we show that under all market conditions, cryptocurrencies have a leadership influence over the volatility indices. Our results have important policy implications for enhancing financial stability and deliver valuable insights for deploying volatility-based financial instruments that can potentially provide cryptocurrency investors with suitable hedges, as we show that cryptocurrency and volatility markets are insignificantly (weakly) connected under normal (extreme) market conditions.

Keywords: Cryptocurrency; Uncertainty indices; Quantile spillover; Cross-quantilogram (search for similar items in EconPapers)
JEL-codes: C40 F36 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (16)

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DOI: 10.1186/s40854-023-00498-y

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