Interconnectedness of cryptocurrency markets: an intraday analysis of volatility spillovers based on realized volatility decomposition

The cryptocurrency market has undergone significant turbulence, characterized by enormous volatility shifts, as recently experienced during the COVID-19 shock. Although there is an abundant literature dealing with various aspects of cryptocurrencies, little attention has been devoted to understanding the interconnectedness among different cryptocurrencies, particularly the role of abrupt changes. This paper aims to fill this gap by conducting an intraday analysis to assess the contagion hypothesis within the cryptocurrency markets, with particular focus on the aprubt changes and whether it is a driver of co-aprubt changes in other markets. Specfically, we investigate four major cryptocurrencies (Bitcoin, Ethereum, Ethereum Classic, and Ripple) both prior to and during the COVID-19 shock, April 2019 to September 2020. Using the Diebold and Yilmaz methodology, we decompose the realized volatility into continuous and jump components, and examine how these spillovers evolve across cryptocurrency markets before and during the COVID-19 crisis. Our findings reveal that while the volatility and returns spillovers across the cryptocurrency market escalate during the crisis, there is a notable decrease in the jumps and co-jumps between cryptocurrencies. This suggests that the heightened interdependency observed is not rooted in fundamental factors. Morever, our findings show that spillover is especially prominent in the continuous part of the realised volatility dynamic. Notably, XRP emerges as the predominant transmitter in the context of continuous part of the realized volatility. Our study contributes to the emerging literature on the interconnectedness of price movement/co-mouvement across cryptocurrencies, offers a novel adaptation of the Diebold and Yilmaz methodology to capture the unique features of cryptocurrency prices.