Testing for asymmetric non-linear short- and long-run relationships between crypto-currencies and stock markets

Abstract

Using the NARDL model for the period of pandemic COVID19, we examined the asymmetric relationship between six crypto-currencies (Bitcoin, Litecoin, Bitcoin gold, Dash, Maker, and Ehereum) and seven stock market prices (S&P500, CAC40, DAX30, NIKKEI, FTSE, FTSEMIB, and SPTSX) accounting for the effects of Gold and WTI prices. In the long run, our results revealed, in most cases, a positive asymmetric relationship between digital and financial assets, suggesting a weak safe haven role for crypto-currencies. The oil price (WTI) was also found to act as a diversifier. However, for, the results revealed, in most cases, a negative asymmetric relationship between the yellow metal and the different stock prices, suggesting that gold can act as a good hedging instrument or a safe haven against stock prices in the long run. On the other hand, in the short run, the results indicate that only Bitcoin, Litecoin, and Maker have an asymmetric effect on the chosen stock prices but the effect is positive in most cases. Moreover, gold can act as a hedge/safe-haven asset in the short run. Finally, while examining the dynamic response of stock prices to the negative and positive shocks of crypto-currencies, we concluded that the majority of stock prices respond more to the negative shocks of crypto-currencies than to the positive ones.

Is the cryptocurrency market a hedge against stock market risk? A Wavelet and GARCH approach

“…Further, Sajeev and Afjal (2022) have investigated the contagion effect of Bitcoin on major global stock exchanges. Study findings suggest a weak time‐varying correlation and asymmetric volatility between the stock and Bitcoin markets (Ghorbel et al, 2022a). Similarly, Bianchi (2020) has found a mild correlation between traditional assets and cryptocurrency returns and documented no spillover effect between these asset classes.…”

“…The results are consistent with those of Kurka (2019) and Gil‐Alana et al (2020), which point out that the relationship between equity and digital currencies is insignificant but that the transmission of shock between them is significant. Meanwhile, some studies like Umar et al (2020), Sajeev and Afjal (2022), and Ghorbel et al (2022a) have demonstrated that stock prices often react to negative shocks in the cryptocurrency market more strongly than positive changes. Based on the above literature, we hypothesized that:…”

“…In a similar domain, Wong et al (2018) have found a negative or insignificant correlation among cryptocurrencies (Bitcoin and Litecoin) with equities, gold, and bonds, demonstrating that cryptocurrencies may be utilized as hedging assets for stated asset classes. Ghorbel et al (2022a) have identified a positive asymmetric relationship between financial and digital assets and suggested that cryptocurrencies can be considered weak safe havens for financial assets. However, Li and Miu (2022) have implied that cryptocurrencies can act as hedging assets in a normal market environment.…”

Shift contagion and minimum causal intensity portfolio during the COVID-19 and the ongoing Russia-Ukraine conflict

“… Ghorbel et al, 2022 , Hemrit and Benlagha, 2021 , Kwon and Holliday, 2007 , Niu, 2021 , Awartani and Maghyereb, 2013 …”

Volatility Dynamics of Non-Linear Volatile Time Series and Analysis of Information Flow: Evidence from Cryptocurrency Data

“…In a study of the unidirectional causal relationship of cryptocurrencies with the COVID-19 pandemic, Toda and Yamamoto (linear) and Diks and Panchenko (nonlinear) Granger causality tests confirm the existence of unidirectional causality [ 7 ]. Ghorbel et al uncovered asymmetric correlations between the stock indexes and cryptocurrencies in both the short and long run and concluded that most stock prices respond more to the negative shocks of cryptocurrencies than to the positive ones [ 8 ]. Moreover, Tong et al examined cryptocurrency price volatility changes over time and are positively correlated.…”