Does Cryptocurrency Trading Have Spillover Effects on the Stock Market?

67 Pages Posted: 29 Jun 2020 Last revised: 6 Feb 2024

See all articles by Qingjie Du

Qingjie Du

University of Birmingham - Birmingham Business School

Yang Wang

Hong Kong Polytechnic University

Chishen Wei

Hong Kong Polytechnic University - School of Accounting and Finance

K.C. John Wei

Hong Kong Polytechnic University

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Date Written: November 5, 2021

Abstract

We investigate whether cryptocurrency trading has spillover effects on the stock market. Using excess return comovement to identify stocks that are traded by cryptocurrency investors, we find evidence of trading-induced price pressure. Stocks that exhibit high excess comovement with cryptocurrencies experience temporary over-valuation and subsequent return reversal that exceed -1% per month. The negative return premium increases after periods of high social transmission. Instrumental variable analysis using Tether flows and authorizations supports a causal interpretation of our findings. Our results add to the growing evidence that cryptocurrency traders impact the pricing of other financial assets.

Keywords: Cryptocurrency, Price pressure, Spillover, Stock market, Social transmission

JEL Classification: G12, G14

Suggested Citation

Du, Qingjie and Wang, Yang and Wei, Chishen and Wei, Kuo-Chiang (John) and You, Haifeng, Does Cryptocurrency Trading Have Spillover Effects on the Stock Market? (November 5, 2021). HKUST Business School Research Paper No. 2020-005 (also appears in Emerging Finance and Financial Practices eJournal), Available at SSRN: https://ssrn.com/abstract=3617910 or http://dx.doi.org/10.2139/ssrn.3617910

Qingjie Du

University of Birmingham - Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

Yang Wang

Hong Kong Polytechnic University ( email )

Hong Kong

Chishen Wei

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Kuo-Chiang (John) Wei (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Haifeng You

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

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