Does Cryptocurrency Trading Have Spillover Effects on the Stock Market?
67 Pages Posted: 29 Jun 2020 Last revised: 6 Feb 2024
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: Suggested Citation