COVID-19 and Information Flow between Cryptocurrencies, and conventional financial assets

In this paper, we analyze the impact of the ongoing COVID-19 pandemic on the information flow among the main cryptocurrencies (Bitcoin, Ethereum, Ripple, and Litecoin) and those of the fear index (VIX), Gold price, and the US equity market (S&P500). We use the transfer entropy measure to determine the information flow by allowing for nonlinear dynamics and extreme tail values in the series. Our results indicate that information flow and sharing have changed during the COVID-19 pandemic with the following main findings: i) cryptocurrencies show more correlation with VIX, Gold, and the US equity markets during the COVID-19 period;ii) Gold and VIX maintain their position as safe hedging tools against the pandemic;iii) during COVID-19, S&P500 is the dominant flow transmitter to the four cryptocurrencies, and iv) Ripple plays the dominant role of information flow to VIX, Gold, and S&P500.

COVID-19 and information flow between cryptocurrencies, and conventional financial assets.

In this paper, we analyze the impact of the ongoing COVID-19 pandemic on the information flow among the main cryptocurrencies (Bitcoin, Ethereum, Ripple, and Litecoin) and those of the fear index (VIX), Gold price, and the US equity market (S&P500). We use the transfer entropy measure to determine the information flow by allowing for nonlinear dynamics and extreme tail values in the series. Our results indicate that information flow and sharing have changed during the COVID-19 pandemic with the following main findings: i) cryptocurrencies show more correlation with VIX, Gold, and the US equity markets during the COVID-19 period; ii) Gold and VIX maintain their position as safe hedging tools against the pandemic; iii) during COVID-19, S&P500 is the dominant flow transmitter to the four cryptocurrencies, and iv) Ripple plays the dominant role of information flow to VIX, Gold, and S&P500.

Does economic policy uncertainty drive the dynamic spillover among traditional currencies and cryptocurrencies? The role of the COVID-19 pandemic.

The paper examines the dynamic spillover among traditional currencies and cryptocurrencies before and during the COVID-19 pandemic and investigates whether economic policy uncertainty (EPU) impacts this spillover. Based on the TVP-VAR approach, we find evidence of spillover effects among currencies, which increased widely during the pandemic. In addition, results suggest that almost all cryptocurrencies remain as "safe-haven" tools against market uncertainty during the COVID-19 period. Moreover, comparative analysis shows that the total connectedness for cryptocurrencies is lower than for traditional currencies during the crisis. Further analysis using quantile regression suggests that EPU exerts an impact on the total and the net spillovers with different degrees across currencies and this impact is affected by the health crisis. Our findings have important policy implications for policymakers, investors, and international traders.

Long Memory in the High Frequency Cryptocurrency Markets using Fractal Connectivity Analysis: The Impact of COVID-19

In this paper, we study the long memory behavior of the hourly cryptocurrency returns during the COVID-19 pandemic period. Initially, we apply different tests against the spurious long memory, with the results indicating the presence of true long memory for most cryptocurrencies. Yet, using the multivariate test, the series are found to be contaminated by level shifts or smooth trends. Then, we adopt the wavelet-based multivariate long memory approach suggested by Achard and Gannaz (2016) to model their long memory connectivity. The findings indicate a change in persistence for all series during the sample period. The fractal connectivity clustering indicates a similarity among Ethereum (ETH) and Litecoin (LTC), Monero (XMR), Bitcoin (BTC), and EOC token (EOS), while Stellar (XLM) is clustered away from the remaining series, indicating the absence of any interdependence with other crypto returns. Overall, shocks arising from COVID-19 crisis have led to changes in long-run correlation structure.

Connectedness between the COVID-19 related media coverage and Islamic equities: The role of economic policy uncertainty

This paper examines the static and dynamic return and volatility connectedness among Islamic equity indices and a Coronavirus coverage index over the ongoing COVID-19 pandemic crisis. We employ ten major sectoral equity indices covering main economic sectors and the Coronavirus media coverage index (MCI) and apply the time-varying parameter vector autoregressive methodology (TVP-VAR). The results show a high degree of connectedness between the return and volatility series of the different sectoral indices. Moreover, the information transmission between these indices and the media coverage index shows that Islamic equities are net receivers of shocks from the coronavirus MCI. Additionally, we investigate the causality between the different connectedness measures and the Economic Policy Uncertainty (EPU). Our results indicate that EPU has predictive power on the net connectedness between the Islamic sectoral equities and the Coronavirus MCI.

When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spillover among cryptocurrencies before and during the COVID-19 pandemic.

This paper examines the dynamic spillovers among the major cryptocurrencies under different market conditions and accounts for the ongoing COVID-19 health crisis. We also investigate whether cryptocurrency policy (CCPO) uncertainty and cryptocurrency price (CCPR) uncertainty affect the dynamic connectedness. We adopt the Quantile-VAR approach to capture the left and right tails of the distributions corresponding to return spillovers under different market conditions. Generally, cryptocurrencies show heterogeneous responses to the occurrence of the COVID-19 pandemic. We find that the total spillover index (TCI) varies across quantiles and rises widely during extreme market conditions, with a noticeable impact of the COVID-19 pandemic. Bitcoin lost its position as a dominant "hedger" during the health crisis, while Litecoin became the most dominant "hedger" and/or "safe-haven" asset before and during the pandemic period. Moreover, our analysis shows a significant impact of market uncertainties on total and net connectedness among the five cryptocurrencies. We argue that the COVID-19 pandemic crisis plays a vital role on the relationship between CCPO as well as CCPR and the dynamic connectedness across all market conditions.

Investor sentiment and Bitcoin relationship: A quantile-based analysis

This paper applies a quantile-based analysis to investigate the causal relationships between Bitcoin and investor sentiment by considering the possible effects of the ongoing COVID-19 pandemic. Such an analysis allows investigating the predictive power of investor sentiment (Bitcoin) on Bitcoin (investor sentiment) at different levels of the distributions. Results emphasize that only Bitcoin returns/volatility have significant predictive power on the investor sentiment whether investors are fear or greed before and over the COVID-19 period. Moreover, the COVID-19 crisis has no effect on the causal relationship between the two variables. Further analysis shows an asymmetric causality observed only during the pandemic period. Furthermore, the quantile autoregressive regression model shows a significant positive relationship between investor sentiment and Bitcoin returns.

Detrended cross-correlation analysis in quantiles between oil price and the US stock market

Previous studies using the detrended cross-correlation analysis (DCCA) do not account for the different market conditions. To address this shortcoming, this paper extends the DCCA in a quantile-based framework to investigate the relationship between WTI crude oil spot price and the S&P500 index from January 1986 to August 2021 under different oil and stock markets conditions. The approach introduced in this research brings out new and exciting findings on the well-debated oil price-stock markets nexus. By considering four possible scenarios regarding the oil and stock markets conditions, results suggest that the sign and strength of cross-correlations between oil and stock markets vary according to the time scale and market condition. These findings are robust when using daily data and the Brent crude oil spot price. Furthermore, when analyzing the effect of the COVID-19 pandemic, findings reveal generally a rise in correlations between the two markets during the pandemic, suggesting the existence of contagion effects between them. Policy implications for both investors and market regulators are subsequently proposed.

COVID-19 pandemic and economic policy uncertainty: The first test on the hedging and safe haven properties of cryptocurrencies.

This study examines the role of the top-5 cryptocurrencies and gold as a hedge and safe haven against the economic policy uncertainty (EPU) before and during the ongoing COVID-19 crisis. We use the GARCH model for the main analysis and a safe haven index (SHI) for robustness. Our findings show that gold and cryptocurrencies cannot act as a strong hedge or safe haven against EPU before and during the COVID-19 pandemic. However, we find that the SHI exhibits negative returns and increased volatility during the COVID-19 and confirms that cryptocurrencies generally act as weak safe haven. Gold is classified as a weak safe haven asset during the whole period and more likely as a safe asset before the health crisis but loses its safe haven property during the COVID-19 crisis. Our findings provide useful information for investors interested in the cryptocurrency market and safe haven assets when building assets portfolios.

Distributional predictability between oil prices and renewable energy stocks: Is there a role for the COVID-19 pandemic?

This research explores the causal relationships between the returns and volatility of oil prices and five clean energy stock indices based on the nonparametric causality-in-quantiles test between October 13, 2010 and September 08, 2020. The analysis is also conducted before and during the COVID-19 pandemic. The findings indicate that over the full and before the pandemic periods, oil returns cause the renewable stock index returns during normal market conditions, but this is not the case in the extreme market conditions. Moreover, all the five renewable energy sectoral stock returns have no predictive power of oil returns under any market conditions. On the other hand, the volatility analysis suggests a significant bidirectional causality between the oil price volatility and the renewable energy stock volatility only at the lower quantiles during the same periods. During the COVID-19 pandemic period, the findings suggest the absence of significant causal relationships between the oil price (returns and volatility) and the renewable energy stocks. However, the causal relationship during the pre-COVID-19 period is close to that reported for the full period. Policy recommendations are therefore proposed based on these results.

Dynamic connectedness between uncertainty and energy markets: Do investor sentiments matter?

This paper examines the dynamics between the energy markets and uncertainty indices from January 1st, 2001 till July 1st, 2020, using the time-domain TVP-VAR-based connectedness approach of Antonakakis and Gabauer (2017). In particular, we examine whether Economic Policy Uncertainty (EPU), Geopolitical Risk (GPR), World Trade Uncertainty (WTU), and Equity Market Uncertainty (EMU) have an impact on the dynamics of returns of oil, gas, and coal markets. Results suggest that the average influence of market uncertainty on energy markets is approximately 53%. Second, we find that the EPU contributes the most to the energy markets, followed by the World Trade Uncertainty index. Third, considering the energy markets, we find that the oil markets contribute the most to other markets. Fourth, we find that the EMU receives the most contribution from other markets, followed by the EPU. Finally, we observe that the total connectedness index is relatively high, coinciding with the Global Financial Crisis of 2008 and the COVID-19 pandemic outbreak. Further analysis of the possible effect of the investor sentiment on the dynamic connectedness shows that the consumer sentiment index (CSI) has a negative (positive) effect on the uncertainty (energy) net connectedness. Our findings have important implications for risk management in energy markets and entail some policy implications for regulators.

Dynamic connectedness between stock markets in the presence of the COVID-19 pandemic: does economic policy uncertainty matter?

This study investigates the dynamic connectedness between stock indices and the effect of economic policy uncertainty (EPU) in eight countries where COVID-19 was most widespread (China, Italy, France, Germany, Spain, Russia, the US, and the UK) by implementing the time-varying VAR (TVP-VAR) model for daily data over the period spanning from 01/01/2015 to 05/18/2020. Results showed that stock markets were highly connected during the entire period, but the dynamic spillovers reached unprecedented heights during the COVID-19 pandemic in the first quarter of 2020. Moreover, we found that the European stock markets (except Italy) transmitted more spillovers to all other stock markets than they received, primarily during the COVID-19 outbreak. Further analysis using a nonlinear framework showed that the dynamic connectedness was more pronounced for negative than for positive returns. Also, findings showed that the direction of the EPU effect on net connectedness changed during the pandemic onset, indicating that information spillovers from a given market may signal either good or bad news for other markets, depending on the prevailing economic situation. These results have important implications for individual investors, portfolio managers, policymakers, investment banks, and central banks.