IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2022-02-4.html
   My bibliography  Save this article

Time Varying Dependence in the Cryptocurrency Market and COVID 19 Panic Index: An Empirical Investigation

Author

Listed:
  • Lamia Kalai

    (Department of Finance, Universit de Tunis El manar, Tunis, Tunisia.)

Abstract

The aim of this paper is to study the interdependence between the Coronavirus Panic Index (PI) and major cryptocurrencies throughout the period of the Covid-19 pandemic.We investigate the evolution of cryptocurrency s value following changes in the Covid panic index levels; then, we use the DCC-MIDAS specification to extract the long- and short-term volatility components of cryptocurrencies and study the responses of the cryptocurrencies to the pandemic panic index. The results show that the panic level metrics could be considered as a potential driver of cryptocurrencies volatility and has a significantly positive influence on the long-term cryptocurrencies correlation during stress levels. Our findings contribute to the existing literature in several ways. First ,we provide specific evidence on the driving effect of Covid panic index on cryptocurrencies correlation during a crisis. Second, our paper adds to the current literature on cryptocurrencies and fills in the existing gap related to the lack of academic research on the pandemic s impact on the cryptocurrency market. Third, the results offer interesting insights for future research and have important implications for investors, especially in understanding the cryptocurrencies behavior and exploring whether cryptocurrencies can serve as a hedge against the COVID-19 crisis.

Suggested Citation

  • Lamia Kalai, 2022. "Time Varying Dependence in the Cryptocurrency Market and COVID 19 Panic Index: An Empirical Investigation," International Journal of Economics and Financial Issues, Econjournals, vol. 12(2), pages 37-51, March.
    • Handle: RePEc:eco:journ1:2022-02-4
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/11675/6650
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijefi/article/view/11675
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Yukun Liu & Aleh Tsyvinski, 2018. "Risks and Returns of Cryptocurrency," NBER Working Papers 24877, National Bureau of Economic Research, Inc.
    2. Ji, Qiang & Bouri, Elie & Gupta, Rangan & Roubaud, David, 2018. "Network causality structures among Bitcoin and other financial assets: A directed acyclic graph approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 203-213.
    3. Virk, Nader & Javed, Farrukh, 2017. "European equity market integration and joint relationship of conditional volatility and correlations," Journal of International Money and Finance, Elsevier, vol. 71(C), pages 53-77.
    4. Goodell, John W. & Goutte, Stephane, 2021. "Co-movement of COVID-19 and Bitcoin: Evidence from wavelet coherence analysis," Finance Research Letters, Elsevier, vol. 38(C).
    5. Ji, Qiang & Bouri, Elie & Roubaud, David, 2018. "Dynamic network of implied volatility transmission among US equities, strategic commodities, and BRICS equities," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 1-12.
    6. Feng, Wenjun & Wang, Yiming & Zhang, Zhengjun, 2018. "Informed trading in the Bitcoin market," Finance Research Letters, Elsevier, vol. 26(C), pages 63-70.
    7. Rognone, Lavinia & Hyde, Stuart & Zhang, S. Sarah, 2020. "News sentiment in the cryptocurrency market: An empirical comparison with Forex," International Review of Financial Analysis, Elsevier, vol. 69(C).
    8. Chaim, Pedro & Laurini, Márcio P., 2019. "Nonlinear dependence in cryptocurrency markets," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 32-47.
    9. Corbet, Shaen & Larkin, Charles & Lucey, Brian, 2020. "The contagion effects of the COVID-19 pandemic: Evidence from gold and cryptocurrencies," Finance Research Letters, Elsevier, vol. 35(C).
    10. Matkovskyy, Roman & Jalan, Akanksha, 2019. "From financial markets to Bitcoin markets: A fresh look at the contagion effect," Finance Research Letters, Elsevier, vol. 31(C), pages 93-97.
    11. Colacito, Riccardo & Engle, Robert F. & Ghysels, Eric, 2011. "A component model for dynamic correlations," Journal of Econometrics, Elsevier, vol. 164(1), pages 45-59, September.
    12. Lahmiri, Salim & Bekiros, Stelios, 2020. "The impact of COVID-19 pandemic upon stability and sequential irregularity of equity and cryptocurrency markets," Chaos, Solitons & Fractals, Elsevier, vol. 138(C).
    13. Liu, Weiyi, 2019. "Portfolio diversification across cryptocurrencies," Finance Research Letters, Elsevier, vol. 29(C), pages 200-205.
    14. Borgards, Oliver & Czudaj, Robert L., 2020. "The prevalence of price overreactions in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).
    15. Fang, Libing & Yu, Honghai & Huang, Yingbo, 2018. "The role of investor sentiment in the long-term correlation between U.S. stock and bond markets," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 127-139.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Iqbal, Najaf & Fareed, Zeeshan & Wan, Guangcai & Shahzad, Farrukh, 2021. "Asymmetric nexus between COVID-19 outbreak in the world and cryptocurrency market," International Review of Financial Analysis, Elsevier, vol. 73(C).
    2. Syed Jawad Hussain Shahzad & Elie Bouri & Sang Hoon Kang & Tareq Saeed, 2021. "Regime specific spillover across cryptocurrencies and the role of COVID-19," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-24, December.
    3. Ahmed BenSaïda, 2023. "The linkage between Bitcoin and foreign exchanges in developed and emerging markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-27, December.
    4. Assaf, Ata & Mokni, Khaled & Yousaf, Imran & Bhandari, Avishek, 2023. "Long memory in the high frequency cryptocurrency markets using fractal connectivity analysis: The impact of COVID-19," Research in International Business and Finance, Elsevier, vol. 64(C).
    5. Colombo, Jefferson A. & Cruz, Fernando I. L. & Paese, Luis H. Z. & Cortes, Renan X., 2021. "The diversification benefits of cryptocurrencies in multi-asset portfolios: cross-country evidence," Textos para discussão 542, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    6. Goodell, John W. & Goutte, Stephane, 2021. "Diversifying equity with cryptocurrencies during COVID-19," International Review of Financial Analysis, Elsevier, vol. 76(C).
    7. Ihsan Erdem Kayral & Ahmed Jeribi & Sahar Loukil, 2023. "Are Bitcoin and Gold a Safe Haven during COVID-19 and the 2022 Russia–Ukraine War?," JRFM, MDPI, vol. 16(4), pages 1-22, April.
    8. Banerjee, Ameet Kumar & Akhtaruzzaman, Md & Dionisio, Andreia & Almeida, Dora & Sensoy, Ahmet, 2022. "Nonlinear nexus between cryptocurrency returns and COVID-19 news sentiment," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    9. Jiang, Yonghong & Wu, Lanxin & Tian, Gengyu & Nie, He, 2021. "Do cryptocurrencies hedge against EPU and the equity market volatility during COVID-19? – New evidence from quantile coherency analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    10. Serdar Neslihanoglu, 2021. "Linearity extensions of the market model: a case of the top 10 cryptocurrency prices during the pre-COVID-19 and COVID-19 periods," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.
    11. Assaf, Ata & Mokni, Khaled & Youssef, Manel, 2023. "COVID-19 and information flow between cryptocurrencies, and conventional financial assets," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 73-81.
    12. Vidal-Tomás, David, 2021. "Transitions in the cryptocurrency market during the COVID-19 pandemic: A network analysis," Finance Research Letters, Elsevier, vol. 43(C).
    13. Bouteska, Ahmed & Sharif, Taimur & Abedin, Mohammad Zoynul, 2023. "Volatility spillovers and other dynamics between cryptocurrencies and the energy and bond markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 92(C), pages 1-13.
    14. Caferra, Rocco & Vidal-Tomás, David, 2021. "Who raised from the abyss? A comparison between cryptocurrency and stock market dynamics during the COVID-19 pandemic," Finance Research Letters, Elsevier, vol. 43(C).
    15. Guo, Xiaochun & Lu, Fengbin & Wei, Yunjie, 2021. "Capture the contagion network of bitcoin – Evidence from pre and mid COVID-19," Research in International Business and Finance, Elsevier, vol. 58(C).
    16. Caporale, Guglielmo Maria & Kang, Woo-Young & Spagnolo, Fabio & Spagnolo, Nicola, 2021. "Cyber-attacks, spillovers and contagion in the cryptocurrency markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    17. Gaies, Brahim & Nakhli, Mohamed Sahbi & Sahut, Jean Michel & Guesmi, Khaled, 2021. "Is Bitcoin rooted in confidence? – Unraveling the determinants of globalized digital currencies," Technological Forecasting and Social Change, Elsevier, vol. 172(C).
    18. Ender Demir & Mehmet Huseyin Bilgin & Gokhan Karabulut & Asli Cansin Doker, 2020. "The relationship between cryptocurrencies and COVID-19 pandemic," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 10(3), pages 349-360, September.
    19. Ben Khelifa, Soumaya & Guesmi, Khaled & Urom, Christian, 2021. "Exploring the relationship between cryptocurrencies and hedge funds during COVID-19 crisis," International Review of Financial Analysis, Elsevier, vol. 76(C).
    20. Fan Fang & Carmine Ventre & Michail Basios & Leslie Kanthan & David Martinez-Rego & Fan Wu & Lingbo Li, 2022. "Cryptocurrency trading: a comprehensive survey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-59, December.

    More about this item

    Keywords

    Covid 19; Volatility; digital currency; DCC-MIDAS ; Kernel regression; response-impulsion; causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2022-02-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.