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Do financial volatilities mitigate the risk of cryptocurrency indexes?

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  • Naeem, Muhammad Abubakr
  • Lucey, Brian M.
  • Karim, Sitara
  • Ghafoor, Abdul

Abstract

Cryptocurrencies are renowned for their extreme volatilities, while financial volatilities exhibit inherent uncertainty in stock, oil, gold, and currency markets. Given these concerns, the current study endeavors to answer the question of whether financial volatilities can mitigate the risk of cryptocurrency indexes. We employ the time-varying parameters vector autoregression approach and find distinct spillover patterns between financial volatilities and cryptocurrency indexes. In this way, we stress the diversification benefits of financial volatilities to mitigate the risk of cryptocurrency indexes. Time-varying trends demonstrated extreme risk spillovers during turmoil periods. We outlined useful implications for policymakers, financial market participants, investors, and portfolio managers.

Suggested Citation

  • Naeem, Muhammad Abubakr & Lucey, Brian M. & Karim, Sitara & Ghafoor, Abdul, 2022. "Do financial volatilities mitigate the risk of cryptocurrency indexes?," Finance Research Letters, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004111
    DOI: 10.1016/j.frl.2022.103206
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    Cited by:

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    4. Arpaci, Ibrahim, 2023. "Predictors of financial sustainability for cryptocurrencies: An empirical study using a hybrid SEM-ANN approach," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    5. Feng, Wenjun & Zhang, Zhengjun, 2023. "Risk-weighted cryptocurrency indices," Finance Research Letters, Elsevier, vol. 51(C).
    6. Yousaf, Imran & Pham, Linh & Goodell, John W., 2023. "The connectedness between meme tokens, meme stocks, and other asset classes: Evidence from a quantile connectedness approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    7. Naeem, Muhammad Abubakr & Hamouda, Foued & Karim, Sitara & Vigne, Samuel A., 2023. "Return and volatility spillovers among global assets: Comparing health crisis with geopolitical crisis," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 557-575.
    8. Naeem, Muhammad Abubakr & Gul, Raazia & Farid, Saqib & Karim, Sitara & Lucey, Brian M., 2023. "Assessing linkages between alternative energy markets and cryptocurrencies," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 513-529.

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