COVID-19 vaccine and post-pandemic recovery: Evidence from Bitcoin cross-asset implied volatility spillover.

ABSTRACT

This paper examines implied volatility spillovers and connectedness between Bitcoin and a broad range of traditional financial assets (U.S. equity market, gold, crude oil, emerging markets and developing markets) from January 8, 2019 to January 20, 2022. Vector Auto-Regression and Generalized Forecast Error Variance Decomposition are used to compare results before COVID-19, during COVID-19 and after the vaccine becomes available. Results indicate higher connectedness during COVID-19 but very low connectedness after the vaccine is available, signaling recovery in financial markets. We also find that Bitcoin is a strong transmitter of volatility during COVID-19.