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

Authors: Susovon Jana; Krishna Dayal Pandey; Tarak Nath Sahu

Addresses: Department of Business Administration, Vidyasagar University, Midnapore, West Bengal – 721102, India ' Department of Business Administration, Sidho-Kanho-Birsha University, Purulia, West Bengal – 723104, India ' Department of Business Administration, Vidyasagar University, Midnapore, West Bengal – 721101, India

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.

Keywords: cryptocurrency; diversification; hedge; safe haven; wavelet coherence; ADCC-GARCH.

DOI: 10.1504/IJEF.2024.137634

International Journal of Electronic Finance, 2024 Vol.13 No.2, pp.168 - 195

Received: 25 Nov 2022
Accepted: 13 Feb 2023
Published online: 02 Apr 2024 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article