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The Dynamic Dependency between a Cryptocurrency ETF and ETFs Representing Conventional Asset Classes

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  • Marcos Velazquez

    (Department of Accounting, Finance, and Energy Business, College of Business, The University of Texas Permian Basin, Odessa, TX 79762, USA)

  • Alper Gormus

    (Department of Accounting, Finance, and Energy Business, College of Business, The University of Texas Permian Basin, Odessa, TX 79762, USA)

  • Nima Vafai

    (Department of Accounting, Finance, and Energy Business, College of Business, The University of Texas Permian Basin, Odessa, TX 79762, USA)

Abstract

Using daily closing price observations between November 2017 and February 2023, this paper documents how the shocks of a cryptocurrency ETF resonate with ETFs representing traditional asset classes in terms of price and volatility. We find price transmission from the cryptocurrency ETF into the ETFs of several currencies, small-cap equities, and inflation. Risk propagation from the cryptocurrency ETF flows toward ETFs constituted of equities of various sizes, oil prices, high-yield corporate bonds, and inflation. There is scant evidence of transmission from ETFs with underlying conventional assets into the cryptocurrency ETF. The findings bear implications for low-cost risk management strategies.

Suggested Citation

  • Marcos Velazquez & Alper Gormus & Nima Vafai, 2023. "The Dynamic Dependency between a Cryptocurrency ETF and ETFs Representing Conventional Asset Classes," JRFM, MDPI, vol. 16(9), pages 1-14, September.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:9:p:412-:d:1240817
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    References listed on IDEAS

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    3. Itzhak Ben‐David & Francesco Franzoni & Rabih Moussawi, 2018. "Do ETFs Increase Volatility?," Journal of Finance, American Finance Association, vol. 73(6), pages 2471-2535, December.
    4. Li Jing & Enders Walte, 2018. "Flexible Fourier form for volatility breaks," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(1), pages 1-19, February.
    5. Gormus, Alper & Nazlioglu, Saban & Soytas, Ugur, 2018. "High-yield bond and energy markets," Energy Economics, Elsevier, vol. 69(C), pages 101-110.
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