Cryptocurrencies and stock market indices. Are they related?

Luis Gil-Alana, Emmanuel Abakah and María Fátima Romero Rojo

Research in International Business and Finance, 2020, vol. 51, issue C

Abstract: In this paper, we investigate the stochastic properties of six major cryptocurrencies and their bilateral linkages with six stock market indices using fractional integration techniques. From the univariate analysis, we observe that for Bitcoin and Ethereum, the unit root null hypothesis cannot be rejected; for Litecoin, Ripple and Stellar, the order of integration is found to be significantly higher than 1; for Tether, however, we find evidence in favour of mean reversion. For the stock market indices, the results are more homogeneous and the unit root cannot be rejected in any of the series, with the exception of VIX where mean reversion is obtained. Concerning bivariate results within the cryptocurrencies and testing for cointegration, we provide evidence of no cointegration between the six cryptocurrencies. Along the same lines, testing for cointegration between the cryptocurrencies and the stock market indices, we find evidence of no cointegration, which implies that the cryptocurrencies are decoupled from the mainstream financial and economic assets. The findings in this paper indicate the significant role of cryptocurrencies in investor portfolios since they serve as a diversification option for investors, confirming that cryptocurrency is a new investment asset class.

Keywords: Cryptocurrencies; Stock market indices; Fractional integration; Fractional cointegration (search for similar items in EconPapers)
JEL-codes: C59 G11 G19 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (83)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531919303472

DOI: 10.1016/j.ribaf.2019.101063

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