FTX fiasco and global equity markets: evidence from event study approach

Priyanka Goyal and Pooja Soni

Journal of Financial Economic Policy, 2023, vol. 15, issue 4/5, 396-407

Abstract: Purpose - This study aims to investigate the impact of FTX bankruptcy on the global stock markets, including both the developed and emerging markets, as per the Morgan Stanley Capital Investment (MSCI) country classification. Design/methodology/approach - Using the daily closing prices for leading stock market indices of all 47 countries in the MSCI market classification, comprising 23 developed markets and 24 emerging markets, the event study methodology is used to examine the impact of the event on developed markets, emerging markets and overall global equity markets. Findings - The study finds heterogeneous effects of the event on different countries. Results indicate that overall global equity markets experienced a statistically significant positive cumulative average abnormal returns of 15.8533% in the complete event window of 28 days fromt− 7 tot+ 20. The authors conclude that traditional global equity markets can be used as a hedge against potential financial risk posed by unfavorable events in the cryptocurrency markets and have safe haven properties. Practical implications - The study emphasizes the global financial system’s interconnectedness and the potential of traditional equity markets to hedge risks in the cryptocurrency market. The findings are relevant for investors seeking portfolio diversification and mitigating their exposure to potential risks in the cryptocurrency market. Originality/value - To the best of the authors’ knowledge, the present study is the earliest attempt to comprehensively examine the impact of the bankruptcy of the world’s fourth largest cryptocurrency exchange, FTX, on the global equity markets.

Keywords: Global equity markets; Event study; FTX bankruptcy; Abnormal returns; Cryptocurrency; Cryptocurrency exchanges; Diversification; Financial markets; Investment; Investment decisions; Financial markets and institutions; Financial risk and risk management (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfeppp:jfep-04-2023-0100

DOI: 10.1108/JFEP-04-2023-0100

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