The dynamic relationship between digital currency and other financial markets in developed and emerging markets

Lumengo Bonga-Bonga and Muhammad Masood Khalique

MPRA Paper from University Library of Munich, Germany

Abstract: The paper examines shock spillovers between traditional currencies, digital currencies, and equity markets across emerging and developed economies. In addition, the study examines how connectivity varies across short- and long-term investment horizons to provide insight for asset managers and investors with different investment horizons. The empirical results reveal that Ethereum and Bitcoin, representing digital currencies, are the primary contributors to total return spillover among the three markets over different time frames in developed economies. When contrasting emerging and developed economies, the paper finds that, over the long term, the traditional currency and equity markets in emerging economies play a more significant role in total return spillover compared to those in developed economies. As a result of this research, asset managers and investors will gain invaluable insights regarding optimal asset allocation and investment decisions over short and long term horizons.

Keywords: Spillover; Digital Currency; Return Connectedness; Asset Managers; Stock Market; Currency Market; Emerging Economy; Developed Economy. (search for similar items in EconPapers)
JEL-codes: C58 F3 G1 G15 (search for similar items in EconPapers)
Date: 2023-08-23
New Economics Papers: this item is included in nep-pay
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