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
AuthorsAbdul-Rahim, R., Khalid, A., Karim, Z. A. and Rashid, M.
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.

KeywordsContainment and health index; COVID-19 pandemic; Hedge; Investor sentiment; Market uncertainties; Public's attention; Rational investment theory; Safe haven; Stock-cryptocurrency complement
Year2022
JournalMathematics
Journal citation10 (12), p. 2116
PublisherMDPI
ISSN2227-7390
Digital Object Identifier (DOI)https://doi.org/10.3390/math10122116
Official URLhttps://www.mdpi.com/2227-7390/10/12/2116
Publication dates
Online17 Jun 2022
Publication process dates
Accepted15 Jun 2022
Deposited30 Jun 2022
Accepted author manuscript
License
File Access Level
Open
Publisher's version
License
File Access Level
Open
Output statusPublished
Permalink -

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

Download files


Publisher's version
2022 mathematics-10-02116-v2.pdf
License: CC BY 4.0
File access level: Open

  • 6
    total views
  • 1
    total downloads
  • 1
    views this month
  • 0
    downloads this month

Export as

Related outputs

Risk dimensions, risk clusters, and foreign direct investments in developing countries
Emeka, O., Hassan, M., Rashid, M., Prabu, Darniya and Sabit, Ahmed 2022. Risk dimensions, risk clusters, and foreign direct investments in developing countries. International Review of Economics & Finance. https://doi.org/10.1016/j.iref.2022.07.013
Voluntary disclosure-cost of equity nexus and the moderating role of corporate governance: evidence from an extremely politically unstable context
Alia, M. A., Abdeljawad, I., Jallad, S. E. and Rashid, M. 2022. Voluntary disclosure-cost of equity nexus and the moderating role of corporate governance: evidence from an extremely politically unstable context. International Journal of Islamic and Middle Eastern Finance and Management. https://doi.org/10.1108/IMEFM-02-2021-0069