Volatility and spillover analysis between cryptocurrencies and financial indices: a diagonal BEKK and DCC GARCH model approach in support of SDGs

This study explores the volatility spillover effects between clean and dirty cryptocurrencies and key financial indices, specifically focusing on Green Finance Indices (such as solar, wind, and nuclear) and Economic Indices (like the Baltic Dry Index and CRB Index). Employing the diagonal BEKK model and the DCC GARCH model, the study spans data from February 17, 2020, to September 30, 2024, to analyze how cryptocurrencies, categorized by their environmental impact, influence these indices. The results reveal significant volatility spillovers from both clean and dirty cryptocurrencies, with clean cryptocurrencies such as Cardano showing a stabilizing effect, while dirty cryptocurrencies like Bitcoin exhibit more pronounced and asymmetric volatility impacts on green finance indices. Furthermore, the persistent correlations identified through the DCC GARCH model highlight the dynamic relationships between cryptocurrency markets and green finance, suggesting that shocks in cryptocurrency volatility can significantly affect the financial dynamics of renewable energy investments. These insights are valuable for portfolio diversification and risk management, indicating that certain cryptocurrencies may serve as effective hedging instruments against risks in green finance. This study contributes to a deeper understanding of the interaction between digital financial assets and sustainable investments, offering practical implications for investors, financial managers, and policymakers committed to achieving Sustainable Development Goals (SDGs).The significance of this research lies in its ability to bridge the emerging domains of cryptocurrency markets and green finance, offering a nuanced understanding of their dynamic interplay. By employing advanced econometric models, such as the diagonal BEKK and DCC GARCH, the study provides robust empirical evidence of the volatility spillovers between clean and dirty cryptocurrencies and their impact on green finance indices. This is particularly critical in an era where sustainable investment is becoming a cornerstone of global financial strategies, driven by the need to align economic activities with Sustainable Development Goals (SDGs). By addressing the interplay between digital financial innovations and green finance, this study contributes to the broader understanding of their implications for achieving Sustainable Development Goals (SDGs), offering practical insights for investors, policymakers, and financial managers focused on sustainable development.