Dynamic connectedness and network in the high moments of cryptocurrency, stock, and commodity markets
Date
2023
Authors
Hanif, W.
Ko, H.U.
Pham, L.
Kang, S.H.
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Journal article
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Financial Innovation, 2023; 9(84):1-40
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Abstract
This study examines the connectedness in high-order moments between cryptocurrency, major stock (U.S., U.K., Eurozone, and Japan), and commodity (gold and oil) markets. Using intraday data from 2020 to 2022 and the time and frequency connectedness models of Diebold and Yilmaz (Int J Forecast 28(1):57–66, 2012) and Baruník and Křehlík (J Financ Econom 16(2):271–296, 2018), we investigate spillovers among the markets in realized volatility, the jump component of realized volatility, realized skewness, and realized kurtosis. These higher-order moments allow us to identify the unique characteristics of financial returns, such as asymmetry and fat tails, thereby capturing various market risks such as downside risk and tail risk.
Our results show that the cryptocurrency, stock, and commodity markets are highly connected in terms of volatility and in the jump component of volatility, while their connectedness in skewness and kurtosis is smaller. Moreover, jump and volatility connectedness are more persistent than that of skewness and kurtosis connectedness. Our rolling-window analysis of the connectedness models shows that connectedness varies over time across all moments, and tends to increase during periods of high uncertainty. Finally, we show the potential of gold and oil as hedging and safe-haven investments for other markets given that they are the least connected to other markets across all moments and investment horizons. Our findings provide useful information for designing effective portfolio management and cryptocurrency regulations.
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Copyright 2023 The Author(s). This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. (http://creativecommons.org/licenses/by/4.0/.)