Understanding the transmission of crash risk between cryptocurrency and equity markets

Peng‐Fei Dai, John W. Goodell, Luu Duc Toan Huynh, Zhifeng Liu and Shaen Corbet

The Financial Review, 2023, vol. 58, issue 3, 539-573

Abstract: We evidence that cryptocurrencies have a higher probability of crashes than equity indices, although such crashes are of shorter duration. Commonality of crash risk between cryptocurrency and equity markets occur in approximately 80% of the periods examined. Further, recently evolved cryptocurrency uncertainty indices are more relevant for predicting co‐crash behavior than economic policy uncertainty. Results are consistent with cryptocurrencies being a growing source of financial instability.

Date: 2023
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