Portfolio Connectedness of Crypto Currencies and Gcc Stock Markets during Covid-19

ABSTRACT

Purpose: The purpose of this study is to investigate connectedness between the four main GCC stock markets (Saudi Arabia, United Arab Emirates, and Oman) and two major cryptocurrencies i.e. Bitcoin and Ethereum. The outcome of the research will help in identifying the diversification in these markets during crises like Covid-19. Design/methodology/approach: The study has used Augmented Dickey-Fuller Test (ADF) and Phillips-Perron test (PP) to test stationary of data, pairwise Granger causality test, followed by variance decomposition test of vector auto-regression (VAR) model to investigate the linkages between the stock markets and cryptocurrencies under study. Descriptive statistics and graphs were used to study the volatility behavior of markets before, during, and after Covid-19. Finding(s) Results showed that volatility was highest for Bitcoin and Ethereum throughout the study period as compared to stock indices. Oman stock indices were found to be a source of diversified investment. During covid Bitcoin and Ethereum were highly endogenous. Dubai Financial Market (DFM) was found highly connected to all indices during covid. Hence, Bitcoin, Ethereum, and DFM do not provide a diversification choice to investors. High linkages were found in all other markets under this study. Connectedness between the stock indices increased during covid. Lastly, series in the study moved to their normal pattern after the covid. Research limitations/implications The study has the scope to be extended to capture the effects of regulations on cryptocurrencies' performance. The results of the study may well help firms and investors to understand the GCC stock market behavior during pandemics and find out diversification choices in these markets. Originality/value Investigating the pattern and connectedness of GCC stock markets and cryptocurrencies with reference to the Covid-19 Pandemic is the originality of this study. Copyright © 2022 Wolters Kluwer Medknow Publications. All rights reserved.