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Frequency connectedness between DeFi and cryptocurrency markets

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  • Mensi, Walid
  • Gubareva, Mariya
  • Kang, Sang Hoon

Abstract

This study investigates the time-frequency spillovers across main DeFi (AVA, POWR, DOGE, MED, BAT, Link, Maker, and SNX) and four leading cryptocurrency markets (Bitcoin, Ethereum, Litecoin, and Ripple). The results show using the time-domain spillover index of Diebold and Yilmaz (2012) high connectedness across markets, underlying forecasting opportunities. Ethereum and Litecoin are the largest contributors and receivers of spillovers while MED is the lowest contributors of shocks in the system. Using the time-frequency spillover index by Baruník and Křehlík (2018), we show that the spillover at long term is higher than those at the short- and medium terms. BAT, LINK, and LTC are net contributors of spillovers at different time investment horizons while AVA, POWR, DOGE, and MED are net receivers irrespective of the time horizons. For the remaining market, they switch from net receiver to net contributor and vice versa. The major events (COVID-19, COVID-19 vaccination, and Ukraine-Russia tensions) intensify the dynamic of return spillovers at short-, medium-, and long-terms, implying contagion effects and a decline in the diversification benefits.

Suggested Citation

  • Mensi, Walid & Gubareva, Mariya & Kang, Sang Hoon, 2024. "Frequency connectedness between DeFi and cryptocurrency markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 12-27.
    • Handle: RePEc:eee:quaeco:v:93:y:2024:i:c:p:12-27
    DOI: 10.1016/j.qref.2023.11.001
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    Cited by:

    1. Seiler, Volker, 2024. "The relationship between Chinese and FOB prices of rare earth elements – Evidence in the time and frequency domain," The Quarterly Review of Economics and Finance, Elsevier, vol. 95(C), pages 160-179.
    2. Elie Bouri & Matteo Foglia & Sayar Karmakar & Rangan Gupta, 2024. "Return-Volatility Nexus in the Digital Asset Class: A Dynamic Multilayer Connectedness Analysis," Working Papers 202432, University of Pretoria, Department of Economics.
    3. Patel, Ritesh & Gubareva, Mariya & Chishti, Muhammad Zubair, 2024. "Assessing the connectedness between cryptocurrency environment attention index and green cryptos, energy cryptos, and green financial assets," Research in International Business and Finance, Elsevier, vol. 70(PA).
    4. Patel, Ritesh & Gubareva, Mariya & Chishti, Muhammad Zubair & Teplova, Tamara, 2024. "Connectedness between healthcare cryptocurrencies and major asset classes: Implications for hedging and investments strategies," International Review of Financial Analysis, Elsevier, vol. 93(C).
    5. Mensi, Walid & Rehman, Mobeen Ur & Vo, Xuan Vinh & Kang, Sang Hoon, 2024. "Spillovers and multiscale relationships among cryptocurrencies: A portfolio implication using high frequency data," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 449-479.

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    More about this item

    Keywords

    DeFi assets; Cryptocurrency; Frequency spillover; COVID-19; Ukraine-Russia tensions;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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