Spillovers between cryptocurrency, DeFi, carbon, and energy markets: A frequency quantile-on-quantile perspective

We applied a novel approach, the quantile-on-quantile frequency connectedness (QQFC), to measure the return spillover effects from the cryptocurrency and decentralized finance indices on the carbon and clean/dirty energy markets. Given the limitations of the traditional quantile connectedness approach, which only considers the transmission mechanism in similar quantile compositions, we combine the quantile-in-quantile connectedness and frequency connectedness methods, allowing us to evaluate the spillover shocks between two markets under different market conditions while also separating the links over multiple time horizons. For the entire period, we find that the spillover effects at directly related quantiles is more prominent than the inversely related quantile estimations and establish an asymmetry pattern in return connectedness, with spillover shocks bearing greater influence at the extreme lower quantiles. Furthermore, the frequency connectedness results show that the spillover effects diminish as the timescale increases. Clean energy markets appear to have stronger interconnectivity with decentralized finance and crypto markets than dirty energy and carbon markets, where the new energy global innovation is the strongest, followed by the clean energy. Although crypto markets have stronger interdependence with other markets than decentralized finance markets, the difference is negligible. The net QQFC results elucidate that, during the entire period and short run, other markets transmit shocks to digital markets when they are in bearish and bullish phases and absorb shocks when they are normal, but in the long run, become predominantly susceptible to shocks from cryptocurrency and DeFi markets. Carbon market, followed by coal, emerges as the most influential markets on the cryptocurrency and DeFi markets, while oil and gas are the most vulnerable markets to the cryptocurrency and DeFi markets, respectively. We witness changes in the roles of the net connectedness over timeframes during the pandemic and stronger spillovers for the ongoing war period.