Do cryptocurrencies integrate with the indices of equity, sustainability, clean energy, and crude oil? A wavelet coherency approach

Abstract

AbstractThe paper examines market co‐movement between pairs of financial assets in the time‐frequency domain. Recent finance literature confirms the integration of cryptocurrencies and financial assets, which may bring more investments with the possibility of surplus liquidity in the cryptocurrency segment, leading to financial instability. The novelty of this paper is examining the integration of cryptocurrencies and the indices of equity, sustainability, renewable energy, and crude oil for the daily observations from 2015 to 2021 by using the wavelet coherency method. The empirical results signify no integration in the short‐term scales and grow stronger in the medium‐term scales, especially during the COVID‐19 period, and further exhibit weaker heterogeneous associations in the long‐term scales. However, the sustainability, clean energy indices follow similar dynamics of the equity market and crypto pairs. In contrast, the global crude oil index showcases the minor integration with cryptocurrencies compared with other traditional asset classes. Hence, the cryptocurrency market fails to confirm the safe haven features, especially during the COVID‐19 periods (Medium‐term), which facilitate the domestic and international investors expecting to hedge their price risk in equity markets using cryptocurrencies may have to look for short‐term. The lead–lag heterogeneous effects of the asset‐pairs may pave arbitrage opportunities for investors.