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An application of ADCC-GARCH and wavelet coherence to explore connectedness between stock markets and cryptocurrencies

Author

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  • Susovon Jana
  • Krishna Dayal Pandey
  • Tarak Nath Sahu

Abstract

The current study aims to explore the dynamic connectedness between stock and cryptocurrency markets and to determine the role of cryptocurrencies in the stock market as a hedge, diversifier, or safe haven. The study uses daily data of four stock indices and six cryptocurrencies, covering a period of January 2016 to December 2022. The analysis is conducted using the ADCC-GARC method with the wavelet coherency. The results indicate both stock and cryptocurrency markets exhibit long-run volatility persistence. The properties of Bitcoin, Ethereum, Binance Coin, Dogecoin, and Ripple vary between a range of hedges and diversifiers in different stock markets, which can change depending on market circumstances. However, only Tether has shown that it can act as a safe haven investment in all studied stock markets over time.

Suggested Citation

  • Susovon Jana & Krishna Dayal Pandey & Tarak Nath Sahu, 2024. "An application of ADCC-GARCH and wavelet coherence to explore connectedness between stock markets and cryptocurrencies," International Journal of Electronic Finance, Inderscience Enterprises Ltd, vol. 13(2), pages 168-195.
    • Handle: RePEc:ids:ijelfi:v:13:y:2024:i:2:p:168-195
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