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Analyzing time–frequency connectedness between cryptocurrencies, stock indices, and benchmark crude oils during the COVID-19 pandemic

Author

Listed:
  • Majid Mirzaee Ghazani

    (K. N. Toosi University of Technology)

  • Ali Akbar Momeni Malekshah

    (K. N. Toosi University of Technology)

  • Reza Khosravi

    (K. N. Toosi University of Technology)

Abstract

We used daily return series for three pairs of datasets from the crude oil markets (WTI and Brent), stock indices (the Dow Jones Industrial Average and S&P 500), and benchmark cryptocurrencies (Bitcoin and Ethereum) to examine the connections between various data during the COVID-19 pandemic. We consider two characteristics: time and frequency. Based on Diebold and Yilmaz’s (Int J Forecast 28:57–66, 2012) technique, our findings indicate that comparable data have a substantially stronger correlation (regarding return) than volatility. Per Baruník and Křehlík’ (J Financ Econ 16:271–296, 2018) approach, interconnectedness among returns (volatilities) reduces (increases) as one moves from the short to the long term. A moving window analysis reveals a sudden increase in correlation, both in volatility and return, during the COVID-19 pandemic. In the context of wavelet coherence analysis, we observe a strong interconnection between data corresponding to the COVID-19 outbreak. The only exceptions are the behavior of Bitcoin and Ethereum. Specifically, Bitcoin combinations with other data exhibit a distinct behavior. The period precisely coincides with the COVID-19 pandemic. Evidently, volatility spillover has a long-lasting impact; policymakers should thus employ the appropriate tools to mitigate the severity of the relevant shocks (e.g., the COVID-19 pandemic) and simultaneously reduce its side effects.

Suggested Citation

  • Majid Mirzaee Ghazani & Ali Akbar Momeni Malekshah & Reza Khosravi, 2024. "Analyzing time–frequency connectedness between cryptocurrencies, stock indices, and benchmark crude oils during the COVID-19 pandemic," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-28, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-024-00645-z
    DOI: 10.1186/s40854-024-00645-z
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