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The impact of FOMC announcements on cryptocurrency risk spillover across different market conditions

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  • Lihui Tian

    (Nankai University)

  • Haifeng Wu

    (Nankai University)

  • Qichang Xie

    (Shandong Technology and Business University)

Abstract

This paper investigates the impact of FOMC announcements on cryptocurrency risk spillovers under different market conditions and their mechanisms of action. We calculate the high-frequency RGARCH volatilities of four major dirty cryptocurrencies and six major clean currencies, and apply the quantile-expanded joint-network approach to test their risk spillovers under different market conditions, and then investigate their impact and mechanism of action by monetary shocks. The results show that: (i) the total spillover in the extreme volatility market is larger than the total spillover in the normal market, and there is a tail asymmetry. (ii) The total cryptocurrency risk spillover in the highly volatile market, the normal market, and the smooth volatility market are all positively affected by monetary shocks. (iii) Mechanism analysis shows that the FOMC announcement will have an impact on the total cryptocurrency market risk spillover through two channels, which are changing the market expectations and hedging demand. Heterogeneity analysis shows that clean cryptocurrencies have positive net spillovers to dirty cryptocurrencies, and the mutual spillovers between the two are significantly affected by monetary shocks in extremely volatile markets.

Suggested Citation

  • Lihui Tian & Haifeng Wu & Qichang Xie, 2025. "The impact of FOMC announcements on cryptocurrency risk spillover across different market conditions," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(3), pages 1035-1069, August.
    • Handle: RePEc:spr:weltar:v:161:y:2025:i:3:d:10.1007_s10290-024-00573-1
    DOI: 10.1007/s10290-024-00573-1
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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