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Revisiting the roles of cryptocurrencies in stock markets: A quantile coherency perspective

Yonghong Jiang, Jiayi Lie, Jieru Wang and Jinqi Mu

Economic Modelling, 2021, vol. 95, issue C, 21-34

Abstract: The common consensus regarding weak correlations between cryptocurrencies and stock markets has recently been challenged by their synchronous downturn during the COVID-19 pandemic. We revisit their relationships at different quantiles and frequencies using a novel quantile coherency approach and a daily dataset of several large-capitalization cryptocurrencies and representative stock indices. Our results demonstrate that their dependence is significant in many cases but rarely negative, which indicates that cryptocurrencies fail to be a strong hedge or safe haven against stock markets. The significantly positive dependence suggests a diversifier role for cryptocurrencies and is stronger at extreme lower quantiles, which could raise public concern about risk contagion between the two in a recession. Ethereum is the most effective diversifier in the short term, whereas all of the cryptocurrencies in this study act as diversifiers over longer time scales. In addition, our hedging effectiveness analysis verifies the diversification benefits of cryptocurrencies for the stock indices in global, developed, emerging and US markets.

Keywords: Cryptocurrencies; Stock markets; Quantile coherency (search for similar items in EconPapers)
JEL-codes: G11 G15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.econmod.2020.12.002

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