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Do cryptocurrencies and traditional asset classes influence each other?

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  • Kurka, Josef

Abstract

This paper studies the asymmetric transmission mechanisms of shocks between the most liquid representatives of traditional asset classes, including commodities, foreign exchange, stocks and financials, and cryptocurrencies, represented by Bitcoin. Our results suggest that the unconditional connectedness between cryptocurrencies and traditional assets is negligible. However, conditional analysis uncovers periods of substantial shock transmission between Bitcoin and traditional assets. This finding undermines the potential of Bitcoin as a hedge to traditional assets and shows that market disruptions can spread from Bitcoin to the traditional economy. The increasing market capitalization of cryptocurrencies further strengthens the importance of such findings.

Suggested Citation

  • Kurka, Josef, 2019. "Do cryptocurrencies and traditional asset classes influence each other?," Finance Research Letters, Elsevier, vol. 31(C), pages 38-46.
    • Handle: RePEc:eee:finlet:v:31:y:2019:i:c:p:38-46
    DOI: 10.1016/j.frl.2019.04.018
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    More about this item

    Keywords

    Cryptocurrencies; Connectedness; Asymmetric effects; Realized semivariance; Volatility; Subject classification codes: C38; C58; E49;
    All these keywords.

    JEL classification:

    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other

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