Cryptocurrency market contagion: Market uncertainty, market complexity, and dynamic portfolios

By Nikolaos Antonakakis, Ioannis Chatziantoniou, David Gabauer. Journal of international financial markets, institutions, and money, 2019

258 citations recorded by the source corpus.

In this study, we employ a TVP-FAVAR connectedness approach in order to investigate the transmission mechanism in the cryptocurrency market. To this end, we concentrate on the top 9 cryptocurrencies by virtue of market capitalization and one market factor – based on 45 additional digital currencies – capturing the co-movements in the cryptocurrency market. The period of study spans between August 7, 2015 and May 31, 2018. We find that the dynamic total connectedness across several cryptocurrencies exhibits large dynamic variability ranging between 25% and 75%. In particular, periods of high (low) market uncertainty correspond to strong (weak) connectedness. We show that these results could be explained on the basis of increased market uncertainty that is associated with periods of highly volatile prices. In addition, despite the fact that Bitcoin still influences the cryptocurrency market substantially, we note that, recently, Ethereum has become the number one net transmitting cryptocurrency. We further note that the market gradually becomes more complex considering our connectedness approach and that this might be attributed to the unique characteristics and possibilities inherent in the technology of each cryptocurrency. A simplified application concentrating on bivariate portfolios is indicative of potential hedging opportunities using dynamic hedge ratios and dynamic portfolio weights.

Subfields: Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/ed290b1a8f0f088292cb2c451f8a220af7338269

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Citations in the corpus

Return connectedness across asset classes around the COVID-19 outbreak (2020, background): “direction of the return spillovers among assets and markets during crisis periods (e.g., Corbet et al., 2020a,b; Gębka and Serwa, 2006; Kang and Yoon, 2019; Tiwari et al., 2020; Antonakakis et al., 2019).”