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Cyber Attacks, Spillovers and Contagion in the Cryptocurrency Markets

Author

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  • Guglielmo Maria Caporale
  • Woo-Young Kang
  • Fabio Spagnolo
  • Nicola Spagnolo

Abstract

This paper examines mean and volatility spillovers between three major cryptocurrencies (Bitcoin, Litecoin and Ethereum) and the role played by cyber attacks. Specifically, trivariate GARCH-BEKK models are estimated which include suitably defined dummies corresponding to different types, targets and number per day of cyber attacks. Significant dynamic linkages (interdependence) among the three cryptocurrencies under investigation are found in most cases when cyber attacks are taken into account, Bitcoin appearing to be the dominant one. Further, Wald tests for parameter shifts during episodes of turbulence resulting from cyber attacks provide evidence that the latter affect the transmission mechanism between cryptocurrency returns and volatilities (contagion). More precisely, cyber attacks appear to strengthen crossmarket linkages, thereby reducing portfolio diversification opportunities for cryptocurrency investors. Finally, the conditional correlation analysis confirms the previous findings.

Suggested Citation

  • Guglielmo Maria Caporale & Woo-Young Kang & Fabio Spagnolo & Nicola Spagnolo, 2020. "Cyber Attacks, Spillovers and Contagion in the Cryptocurrency Markets," CESifo Working Paper Series 8324, CESifo.
  • Handle: RePEc:ces:ceswps:_8324
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    1. Florentina Șoiman & Mathis Mourey & Jean-Guillaume Dumas & Sonia Jimenez-Garces, 2021. "The forking effect," Working Papers hal-03216121, HAL.
    2. Carol Alexander & Daniel Heck & Andreas Kaeck, 2021. "The Role of Binance in Bitcoin Volatility Transmission," Papers 2107.00298, arXiv.org, revised Aug 2021.
    3. Mensi, Walid & Al-Yahyaee, Khamis Hamed & Wanas Al-Jarrah, Idries Mohammad & Vo, Xuan Vinh & Kang, Sang Hoon, 2021. "Does volatility connectedness across major cryptocurrencies behave the same at different frequencies? A portfolio risk analysis," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 96-113.
    4. Chu, Meifen, 2021. "Bitcoin and traditional currencies during the Covid-19 pandemic period," MPRA Paper 110117, University Library of Munich, Germany.
    5. Mudassar Hasan & Muhammad Abubakr Naeem & Muhammad Arif & Syed Jawad Hussain Shahzad & Xuan Vinh Vo, 2022. "Liquidity connectedness in cryptocurrency market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.

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    More about this item

    Keywords

    mean and volatility spillovers; contagion; cryptocurrencies; cyber attacks;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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