Contagious Volatility

50 Pages Posted: 24 Sep 2019 Last revised: 10 Oct 2019

Date Written: September 14, 2019

Abstract

How does uncertainty of crypto-assets affect traditional asset classes? Using a vector autoregression (VAR) methodology, I answer this question by analyzing volatility spillovers between five asset classes (crypto-assets, stocks, bonds, fiat-currencies, and commodities). Given the vast the heterogeneity within each asset class, my VAR specification accounts for cross sectional variation across and within each asset class. By transforming the systemic shocks (obtained from the VAR) into sectoral shocks, I am able to distinguish between volatility spillovers across, and volatility co-movements within asset classes. I find that on average volatility of crypto-assets accounts for 15% of the volatility contagion received by traditional asset classes. The directional spillovers from crypto-asset to bonds and to currencies are particularly strong, capturing the wealth channel and the remittance channel, respectively.

Keywords: Crypto-Assets, Financial Stability, Contagion Across Asset Classes

JEL Classification: G19, G23

Suggested Citation

Buchwalter, Bastien, Contagious Volatility (September 14, 2019). Available at SSRN: https://ssrn.com/abstract=3453415 or http://dx.doi.org/10.2139/ssrn.3453415

Bastien Buchwalter (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

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