Contagious Volatility

55 Pages Posted: 31 Oct 2019 Last revised: 11 Nov 2019

Date Written: June 4, 2019

Abstract

How does uncertainty of crypto-assets affect traditional asset classes? Using a vector autoregression methodology, I answer this question by analyzing volatility spillovers between five asset classes (crypto-assets, stocks, bonds, fiat-currencies, and commodities). Given the vast 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 fiat-currencies are particularly strong, capturing the wealth channel and the remittance channel, respectively.

Suggested Citation

Buchwalter, Bastien, Contagious Volatility (June 4, 2019). Proceedings of Paris December 2019 Finance Meeting EUROFIDAI - ESSEC, Available at SSRN: https://ssrn.com/abstract=3478511 or http://dx.doi.org/10.2139/ssrn.3478511

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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