On the Risk Spillover from Bitcoin to Altcoins: The Fear of Missing Out and Pump-and-Dump Scheme Effects

This article examines the asymmetric volatility spillover effects between Bitcoin and alternative coin markets at the disaggregate level. We apply a frequency connectedness approach to the daily data of 11 major cryptocurrencies for the period from 1 September 2017 to 2 March 2022. We try to uncover the existence of the "fear of missing out” psychological effect and "pump-and-dump schemes” in the crypto markets. To do that, we estimate the volatility spillovers from Bitcoin to altcoin and the cryptos' own risk spillovers during bull and bear markets. The spillover results from Bitcoin to altcoin provide mixed results regarding the presence of this theory for major cryptocurrencies. However, the empirical findings carried out by the cryptos' own spillover effects fully confirm the existence of a fear-of-missing-out effect and pump-and-dump schemes in all cryptocurrencies except for USDT.

CONTAGION ACROSS FINANCIAL MARKETS DURING COVID-19: A LOOK AT VOLATILITY SPILLOVERS BETWEEN THE STOCK AND FOREIGN EXCHANGE MARKETS IN SOUTH AFRICA

The onset of the novel coronavirus pandemic (COVID-19) and previous financial and currency crises have heightened interest in understanding the nature of the interaction of stock market and exchange rate volatility. This paper aims to investigate the interdependence and volatility transmissions between the stock and foreign exchange markets for South Africa over the period of 1979:01–2021:08, including the effect the COVID-19 pandemic has had on the interdependence and volatility transmissions. Through the use of bivariate Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) modeling, the empirical outcomes from this study provide strong evidence in support of the “stock-orientated” approach, where significant price and volatility spillovers propagate from the stock market into the foreign exchange market, whilst evidence of the “flow-orientated” approach is seen in the second moment and significant shock and asymmetric spillovers from the exchange to stock market are found. The results support the asymmetric and long-range persistence volatility spillover effect and show strong evidence of contagion between stock and foreign exchange markets. These spillovers became more pronounced during the COVID-19 pandemic, confirming heightened contagion in these markets during the periods of crisis. The results heed important implications for not only policymakers who are concerned by the contagion across financial markets and better regulations of these markets to promote economic growth, but also investors and fund managers who seek to hedge investment risks in South Africa.