Do Cryptocurrencies Increase the Systemic Risk of the Global Financial Market?
22 Pages Posted: 7 May 2020
Date Written: January–February 2020
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: Suggested Citation