55 Pages Posted: 31 Oct 2019 Last revised: 11 Nov 2019
Date Written: June 4, 2019
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.
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