Dynamic volatility connectedness among cryptocurrencies and China’s financial assets in standard times and during the COVID-19 pandemic

Finance Research Letters, Volume 51, January 2023

a School of Business, Sun Yat-sen University, 135 Xingang Road West, Guangzhou, 510275, China
b Department of MTEC, ETH Zurich, Scheuchzerstrasse 7, Zurich, 8092, Switzerland
c School of Business Administration, South China University of Technology, 381 Wushan Road, Guangzhou, 510641, China
d Guangzhou Financial Service Innovation and Risk Management Research Base, South China University of Technology, 381 Wushan Road, Guangzhou, 510641, China

Received 10 September 2022, Revised 30 October 2022, Accepted 5 November 2022, Available online 7 November 2022, Version of Record 10 November 2022.

ABSTRACT

In this paper, we use the time-varying parameter vector autoregressions (TVP-VAR) model to examine volatility connectedness among 5 cryptocurrencies and 5 China’s financial assets in static and dynamic scenarios. We find that the dynamic total connectedness of the system exhibits large dynamic variability. When the total connectedness breaks through 50%, it will move down rapidly. Ethereum and Litecoin are increasing their influence, whereas Bitcoin is losing its leadership. The impact of the cryptocurrency market on China’s financial market has become very small since 2022Q1. Furthermore, the COVID-19 outbreak has a long-term (short-term) impact on the gold market (the other markets).