Contagion effect of cryptocurrency on the securities market: a study of Bitcoin volatility using diagonal BEKK and DCC GARCH models

Kavya Clanganthuruthil Sajeev () and Mohd Afjal
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Kavya Clanganthuruthil Sajeev: Independent Researcher

SN Business & Economics, 2022, vol. 2, issue 6, 1-21

Abstract: Abstract The fundamental aim of this study is to examine the contagion effect of Bitcoin on the National Securities Exchange, Shanghai Stock Exchange, London Stock Exchange, and Dow Jones Industrial Average by analyzing the volatility spillover and correlation between these markets to understand the short-term and long-term impact of this volatility ranging from the shocks during the period March 2017–May 2021. Irrespective of ups and downs happening in the cryptocurrency market, more investors are investing their money in the cryptocurrency market. This paper will contribute to the existing literature by studying volatility spillover in the market, its contagion effect, and to identify if there is a long-term and short-term impact between the Bitcoin and stock markets facilitating the transmission of volatility spillover. We employed the Diagonal BEKK and DCC MGARCH models to investigate the integration between Bitcoin and the stock markets. From the empirical analyses, we find the overall time-varying correlation between Bitcoin and the stock markets is low, indicating that Bitcoin can be taken as an asset to hedge against the risk of these stock markets. It was also evident that these stock markets responded more to the negative shocks during 2018 and 2021 than the positive shocks in the Bitcoin market. Our study may be helpful for investment decisions, academia, and policymakers.

Keywords: Cryptocurency; Volatility spillover; Contagion effect; Securities markets; BEKK–DCC GARCH models (search for similar items in EconPapers)
JEL-codes: C58 D53 G15 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s43546-022-00219-0

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