Spillover effects, lead and lag relationships, and stable coins time series

Seongcheol Paeng, Dave Senteney and Taewon Yang

The Quarterly Review of Economics and Finance, 2024, vol. 95, issue C, 45-60

Abstract: This research explores plausible spillover effects among S&P 500 Index, stable coins, and selected cryptocurrency time series by examining observable lead and lag interrelationships among the series. Considering the heteroscedastic and “fat-tailed” nature of the data distributions underlying the empirical analyses, we employ quantile Granger Causality tests to improve the validity of our statistical findings. Our test results suggest that stable coins, USDT, and USDC offer diversification benefits by decreasing portfolio risk. The log returns of the S&P 500 Index, stable coins, Bitcoin, Ethereum, and Binance coins demonstrate clear bidirectional causality and spillover effects in low and high quantiles. Interestingly, however, stable coin and USDT returns strongly lead S&P 500 Index returns in nearly all quantiles for post COVID-19 time periods. These findings indirectly support intuition based upon market co-movement or integration assertions and suggest that investors can obtain added diversification benefits deriving from causality or spillover effects of holding stable coins when forming investment portfolios.

Keywords: Stable coin; Cryptocurrency; Lead and Lag; Diversification; Granger Causality in Quantiles; Vector Autoregression (search for similar items in EconPapers)
JEL-codes: G11 (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:quaeco:v:95:y:2024:i:c:p:45-60

DOI: 10.1016/j.qref.2024.03.003

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