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Time varying risk aversion and its connectedness: evidence from cryptocurrencies

Author

Listed:
  • Shaen Corbet

    (Dublin City University
    School of Accounting, Finance and Economics)

  • Yang Hou

    (School of Accounting, Finance and Economics)

  • Yang Hu

    (School of Accounting, Finance and Economics)

  • Les Oxley

    (School of Accounting, Finance and Economics)

Abstract

Changing patterns of risk aversion may follow a non-linear counter-cyclical process. However, the evidence so far has not considered developing cryptocurrency markets. Given some unique features of cryptocurrencies, it is interesting to distinguish how these assets differ from traditional products. This paper investigates the time effects of periodicity on risk aversion for a selection of major cryptocurrencies compared to major financial assets. Significant periodic time-varying patterns are identified when analysing risk aversion. Further, bilateral and bidirectional Granger causalities are identified within cryptocurrencies, as well as between cryptocurrencies and traditional financial assets. Bitcoin is identified as a leading information transmitter of the spillover of risk aversion upon other cryptocurrencies, while estimated risk aversion of traditional financial markets plays a dominant role in the spillover processes upon the cryptocurrency cluster. The latter finding presents further evidence of developing cryptocurrency market maturity. The COVID-19 pandemic is found to have significantly influenced the connectedness of risk aversion among cryptocurrency and traditional financial markets.

Suggested Citation

  • Shaen Corbet & Yang Hou & Yang Hu & Les Oxley, 2024. "Time varying risk aversion and its connectedness: evidence from cryptocurrencies," Annals of Operations Research, Springer, vol. 338(2), pages 879-923, July.
    • Handle: RePEc:spr:annopr:v:338:y:2024:i:2:d:10.1007_s10479-024-06001-9
    DOI: 10.1007/s10479-024-06001-9
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