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Tail-event driven network of cryptocurrencies and conventional assets

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  • Jiang, Wen
  • Xu, Qiuhua
  • Zhang, Ruige

Abstract

We investigate the tail risk spillover effects between cryptocurrencies and conventional assets from a systemic risk perspective, by constructing a large tail-event driven network. The results provide strong evidence for the existence of tail-risk spillovers, which challenges most literature stating the detachment of Bitcoin from traditional assets. Moreover, this paper finds two significant network factors in explaining the return of cryptocurrencies. Specifically, the risk contagion occurs under extreme market conditions, while the network diversification happens only when the market is under distress. Further sub-market analysis finds that cryptocurrencies are impacted more than stocks by the massive selloff during bear markets.

Suggested Citation

  • Jiang, Wen & Xu, Qiuhua & Zhang, Ruige, 2022. "Tail-event driven network of cryptocurrencies and conventional assets," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s154461232100413x
    DOI: 10.1016/j.frl.2021.102424
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    Cited by:

    1. Lee, Chi-Chuan & Yu, Chin-Hsien & Zhang, Jian, 2023. "Heterogeneous dependence among cryptocurrency, green bonds, and sustainable equity: New insights from Granger-causality in quantiles analysis," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 99-109.
    2. Nagl, Maximilian, 2024. "Intricacy of cryptocurrency returns," Economics Letters, Elsevier, vol. 239(C).
    3. Liao, Xin & Li, Qin & Chan, Stephen & Chu, Jeffrey & Zhang, Yuanyuan, 2024. "Interconnections and contagion among cryptocurrencies, DeFi, NFT and traditional financial assets: Some new evidence from tail risk driven network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 647(C).
    4. Liu, Zixin & Hu, Jun & Zhang, Shuguang & He, Zhipeng, 2024. "Risk spillovers among oil, gold, stock, and foreign exchange markets: Evidence from G20 economies," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

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    More about this item

    Keywords

    Cryptocurrency; CoVaR; Network; Adjacency matrix; Risk spillover; Systemic risk;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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