Connectedness between energy cryptocurrencies and US equity markets: A quantile-based analysis

Imran Yousaf, Afsheen Abrar, Shoaib Ali and John W. Goodell

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Energy cryptocurrencies emerge as a new class of digital assets for morally conscientious investors to build long-term portfolios with high risk-adjusted returns. Focusing on this unique asset class, the current study investigates the static and dynamic spillovers between energy cryptocurrencies and US equity sector stocks at various quantiles. We apply the quantile VAR technique on the selected sample of four energy cryptocutrrencies and eleven major US equity markets for February 27, 2018 to November 25, 2022. This period includes two important subperiods: COVID-19 and the Russian-Ukraine War. Our findings support higher connectedness levels at the extreme lower and upper quantiles compared to the mean and median quantiles. While all energy cryptocurrencies are shock receivers at the extreme lower quantile, the majority of US equity sector stocks are shock transmitters at the lower quantile. The IT sector is a shock receiver at all quantiles, whereas the energy sector is a shock transmitter. Overall connectedness fluctuates over time and shows a significant rise at the start of the COVID period. Our results provide insights to investors, portfolio managers, and policymakers regarding portfolio allocation, forecasting, and risk management during downward and upward market conditions. Additionally, the ideal hedge ratios slightly increased during the COVID-19 pandemic, which increased the cost of asset coverage.

Keywords: Energy cryptocurrencies; Financial markets; Quantile spillover; Market contagion (search for similar items in EconPapers)
JEL-codes: C58 F36 G10 G11 G15 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924005982

DOI: 10.1016/j.irfa.2024.103666

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