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Volatility Spillover and Directionality in Cryptocurrency and Metal Markets

Dutta, S and Kayal, P and Balasubramnaian, G (2023) Volatility Spillover and Directionality in Cryptocurrency and Metal Markets. In: Journal of Emerging Market Finance, 22 (4). 464 -485.

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Official URL: https://doi.org/10.1177/09726527231192143


This article investigates the dynamic relationship between cryptocurrencies and metals, examining the existence and direction of volatility spillovers. While previous studies have explored the relationships between different cryptocurrencies and between base metals and gold, there is a notable gap in understanding the volatility spillover nexus among cryptocurrencies. This study makes a significant contribution by employing the Time-Varying-Parameter-Vector-Autoregressive (TVP-VAR) total connectedness measure to assess the strength of association between these assets. Our analysis employs 10-year daily returns data for three cryptocurrencies (Bitcoin, Litecoin, and Ethereum) and two metals (Gold and Copper). As we witness major economic events worldwide, this study is particularly relevant, as it provides insights into potential hedging opportunities. To comprehend the risk contagion patterns, various measures of partial and dynamic connectedness are computed, supporting the earlier TVP-VAR analysis. The findings indicate that Litecoin and Ethereum exhibit a high level of connectedness, while Bitcoin remains relatively less connected. Among the metals, Gold and Copper demonstrate similar levels of connectedness in certain cases. Notably, there is a significant risk contagion between Litecoin and metals. These results hold essential implications for policy-makers and portfolio managers with different time horizons, offering valuable insights into risk contagion within the cryptocurrency and metal markets. JEL Codes: C32; G15; G17; G41. © 2023 Institute of Financial Management and Research.

Item Type: Journal Article
Publication: Journal of Emerging Market Finance
Publisher: Sage Publications India Pvt. Ltd
Additional Information: The copyright for this article belongs to the Sage Publications India Pvt. Ltd
Department/Centre: Division of Interdisciplinary Sciences > Management Studies
Date Deposited: 28 Oct 2023 10:19
Last Modified: 28 Oct 2023 10:19
URI: https://eprints.iisc.ac.in/id/eprint/83161

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