Cryptocurrencies, Mainstream Asset Classes and Risk Factors - A Study of Connectedness

George Milunovich

Papers from arXiv.org

Abstract: We investigate connectedness within and across two major groups or assets: i) five popular cryptocurrencies, and ii) six major asset classes plus two commonly employed risk factors. Granger-causality tests uncover six direct channels of causality from the elements of the mainstream assets/risk factors group to digital assets. On the other hand there are two statistically significant causal links going in the other direction. In order to provide some perspective on the magnitude of the uncovered linkages we supplement the analysis by estimating networks from forecast error variance decompositions. The estimated connectedness within the groups is relatively large, whereas the linkages across the two groups are small in comparison. Namely, less than 2.2 percent of future uncertainty of any cryptocurrency is sourced from all non-crypto assets combined, while the joint contribution of all digital assets to non-crypto uncertainty does not exceed 1.5 percent.

Date: 2018-09
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Journal Article: Cryptocurrencies, Mainstream Asset Classes and Risk Factors: A Study of Connectedness (2018)
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