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Dissecting the Terra-LUNA crash: Evidence from the spillover effect and information flow

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  • Lee, Seungju
  • Lee, Jaewook
  • Lee, Yunyoung

Abstract

The Terra-LUNA crash in May 2022 was triggered by the depeg of the ecosystem’s stablecoin UST. It led to the unprecedented demise of a blockchain ecosystem and cost investors tens of billions of dollars. We examined the impact of the Terra-LUNA crash on the cryptocurrency market. Based on the hourly return and realized volatility from April 2022 to May 2022, we used the spillover index and effective transfer entropy to configure the interlinkage change between cryptocurrency markets. We conclude that the Terra-LUNA crash had a significant impact on the connectedness of the cryptocurrency market, investor attention, and market sentiment.

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  • Lee, Seungju & Lee, Jaewook & Lee, Yunyoung, 2023. "Dissecting the Terra-LUNA crash: Evidence from the spillover effect and information flow," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007668
    DOI: 10.1016/j.frl.2022.103590
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    1. Xihan Xiong & Zhipeng Wang & Xi Chen & William Knottenbelt & Michael Huth, 2023. "Leverage Staking with Liquid Staking Derivatives (LSDs): Opportunities and Risks," Papers 2401.08610, arXiv.org, revised May 2024.
    2. Matthias Hafner & Marco Henriques Pereira & Helmut Dietl & Juan Beccuti, 2023. "The four types of stablecoins: A comparative analysis," Papers 2308.07041, arXiv.org.
    3. Qin Wang & Guangsheng Yu & Shiping Chen, 2023. "Cryptocurrency in the Aftermath: Unveiling the Impact of the SVB Collapse," Papers 2311.10720, arXiv.org.

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