New Evidence on Spillovers Between Crypto Assets and Financial Markets
IMF Working Papers, September 29, 2023
Source details
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- New Evidence on Spillovers Between Crypto Assets and Financial Markets
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Bibliographic details
- Authors: Roshan Iyer, Adina Popescu
- Published: September 29, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400256622.001
Key findings
- The study analyzes returns and volatility spillovers among a representative set of crypto and financial assets.
- The magnitude of spillovers increases during periods of heightened turbulence caused by negative economic-financial news, crypto market events, or exogenous shocks.
- There is evidence of increasing spillovers over time, with a peak during the COVID-19 pandemic, implying growing interdependence.
- Crypto assets predominantly transmit spillovers to financial markets, though reversals occur during periods of financial stress.
- The increased correlation during risk-off episodes suggests that crypto assets could serve as important conduits for financial market shocks, generating financial stability risks.
Analysis and implications
- Spillover dynamics:
- Returns and volatility spillovers are present between crypto assets and traditional financial assets.
- Spillovers are time-varying and intensify in episodes of market turbulence and adverse news.
- The COVID-19 pandemic corresponds to a peak in measured spillovers, indicating heightened interdependence in that episode.
- Directionality:
- Net transmission tends to flow from crypto assets to financial markets in most periods.
- Direction can reverse in episodes of financial stress, indicating two-way transmission potential.
- Financial stability considerations:
- Increased correlation in risk-off episodes implies crypto markets may amplify or transmit shocks across financial markets, posing financial stability risks.
Subjects and keywords
- Subjects: COVID-19, Financial markets, Financial sector policy and analysis, Health, Securities markets, Spillovers, Stock markets
- Keywords: Bitcoin, COVID-19, Crypto assets, crypto market, crypto market event, Cryptocurrencies, Global, magnitude of spillover, Return and Volatility Connectedness, Securities markets, Spillovers, Stock markets, volatility connectedness, volatility spillover
Source: IMF Working Papers — "New Evidence on Spillovers Between Crypto Assets and Financial Markets" by Roshan Iyer and Adina Popescu, September 29, 2023.
Content in this bundle
- Working Paper