Exploring the driving forces of stock-cryptocurrency comovements during COVID-19 pandemic: an analysis using wavelet coherence and seemingly unrelated regression
Journal article
Abdul-Rahim, R., Khalid, A., Karim, Z. A. and Rashid, M. 2022. Exploring the driving forces of stock-cryptocurrency comovements during COVID-19 pandemic: an analysis using wavelet coherence and seemingly unrelated regression. Mathematics. 10 (12), p. 2116. https://doi.org/10.3390/math10122116
Authors | Abdul-Rahim, R., Khalid, A., Karim, Z. A. and Rashid, M. |
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Abstract | This paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s containment and health responses to COVID-19. Wavelet Coherence heatmaps show that the stock-cryptocurrency comovements increase significantly and positively during the pandemic, indicating that cryptocurrencies lose their safe haven properties against stocks during the heightened market uncertainties. Over the longer investment horizons, Bitcoin reemerges as a safe haven or strong hedger while Ethereum’s properties weaken. Seemingly Unrelated Regression results reveal that the stock-cryptocurrency comovements are rationally explained by market uncertainties, government responses to COVID-19, and market fundamentals. However, the comovements are also driven by the fear of COVID-19 to a certain extent. Our findings offer valuable insights for investors considering cryptocurrencies to rebalance their equity portfolios during market distress. For policymakers, the Economic Policy Uncertainty (EPU) results suggest that government policies and regulatory frameworks can be used to regulate speculation and investment activities in the cryptocurrency market. |
Keywords | Containment and health index; COVID-19 pandemic; Hedge; Investor sentiment; Market uncertainties; Public's attention; Rational investment theory; Safe haven; Stock-cryptocurrency complement |
Year | 2022 |
Journal | Mathematics |
Journal citation | 10 (12), p. 2116 |
Publisher | MDPI |
ISSN | 2227-7390 |
Digital Object Identifier (DOI) | https://doi.org/10.3390/math10122116 |
Official URL | https://www.mdpi.com/2227-7390/10/12/2116 |
Publication dates | |
Online | 17 Jun 2022 |
Publication process dates | |
Accepted | 15 Jun 2022 |
Deposited | 30 Jun 2022 |
Accepted author manuscript | License File Access Level Open |
Publisher's version | License File Access Level Open |
Output status | Published |
https://repository.canterbury.ac.uk/item/915z7/exploring-the-driving-forces-of-stock-cryptocurrency-comovements-during-covid-19-pandemic-an-analysis-using-wavelet-coherence-and-seemingly-unrelated-regression
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