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Price Spillovers from Decentralized Finance to CEE Stock Markets

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  • Ngo Thai Hung

Abstract

Decentralized finance (DeFi) is a brand-new disruptive procedure that encourages the use of blockchain technology for developing and distributing a variety of financial goods and services. This study investigates the time-varying and asymmetric interplay between DeFi and CEE stock returns, concentrated around the COVID-19 outbreak and the Russo-Ukrainian conflict. While the associations between other cryptocurrencies and conventional assets have been studied, DeFi assets have not. For this purpose, we employ the multivariate DECO-GARCH model and cross-quantilogram framework. The results reveal a positive equicorrelation between DeFi and CEE stock market returns. Notably, the influence of DeFi on CEE stock markets is greater during the COVID-19 outbreak and the Russo-Ukrainian conflict than in the other periods. Furthermore, the cross-quantilogram estimations uncover that CEE stock markets depend less on the DeFi market at longer lag lengths. This means that the diversification benefits of DeFi against CEE stock market returns are more important for long-run investment horizons. In general, our research offers a new understanding of dependence structures, which might help investors make better investment decisions and direct their trading strategies.

Suggested Citation

  • Ngo Thai Hung, 2024. "Price Spillovers from Decentralized Finance to CEE Stock Markets," Politická ekonomie, Prague University of Economics and Business, vol. 2024(3), pages 565-596.
    • Handle: RePEc:prg:jnlpol:v:2024:y:2024:i:3:id:1416:p:565-596
    DOI: 10.18267/j.polek.1416
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    More about this item

    Keywords

    DeFi; stock markets; DECO-GARCH; cross-quantilogram; CEE regions;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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