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Who raised from the abyss? A comparison between cryptocurrency and stock market dynamics during the COVID-19 pandemic

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  • Caferra, Rocco
  • Vidal-Tomás, David

Abstract

This research examines the behaviour of cryptocurrencies and stock markets during the COVID-19 pandemic through the wavelet coherence approach and Markov switching autoregressive model. Our results show a financial contagion in March, since both cryptocurrency and stock prices fell steeply. Despite this turn-down, cryptocurrencies promptly rebounded, while stock markets are trapped in the bear phase. In other words, we observe that the price dynamics during the pandemic depends on the type of the market. These findings are relevant for investors since some hedging properties can be found in the cryptocurrency response to such a drastic event.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000350
    DOI: 10.1016/j.frl.2021.101954
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    More about this item

    Keywords

    COVID-19; Cryptocurrencies; Stock markets; Co-movement; Hidden regimes;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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