Financial Contagion and Volatility Spillover: an exploration into Bitcoin Future and FOREX Future Markets

Abstract

This paper examines the time-varying conditional correlations between Bitcoin future market and five FOREX future markets. A sixvariate dynamic conditional correlation (DCC) GARCH model is applied in order to capture potential contagion effects between the markets for the period 2017-2019. Empirical results reveal contagion during the under investigation period regarding the one sixvariate model, showing potential volatility transmission channels among the future markets. Findings have crucial implications for policymakers who provide regulations for the above derivative markets.

Keywords: Bitcoin future market, DCC-GARCH model, dynamic conditional correlations, financial contagion, FOREX future markets

JEL Classification: C58, C61, G11, G15