Do Cryptocurrencies Increase the Systemic Risk of the Global Financial Market?

22 Pages Posted: 7 May 2020

See all articles by Shiyun Li

Shiyun Li

Peking University

Yiping Huang

Peking University

Date Written: January–February 2020

Abstract

The advance of cryptocurrencies has sparked wide concern over their interplay with the existing global financial market. This paper analyzes the risk spillover relation between cryptocurrencies and major financial assets, and unravels how cryptocurrencies could influence global financial systemic risk. We find that cryptocurrencies function as a separate risk source from traditional assets. Major legislative, financial and technological events in the cryptocurrency market may affect risk spillover dynamics. Although the overall penetration of cryptocurrencies is not yet deep, introducing cryptocurrency can significantly increase the systemic risk to traditional markets during low risk level episodes.

Keywords: cryptocurrency, dynamic risk spillover, systemic risk

JEL Classification: E44, F36, G15

Suggested Citation

Li, Shiyun and Huang, Yiping, Do Cryptocurrencies Increase the Systemic Risk of the Global Financial Market? (January–February 2020). China & World Economy, Vol. 28, Issue 1, pp. 122-143, 2020, Available at SSRN: https://ssrn.com/abstract=3594720 or http://dx.doi.org/10.1111/cwe.12314

Shiyun Li (Contact Author)

Peking University

No. 38 Xueyuan Road
Haidian District
Beijing, 100871
China

Yiping Huang

Peking University ( email )

Beijing, 100871
China

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