FinTech-powered integration: Navigating the static and dynamic connectedness between GCC equity markets and renewable energy cryptocurrencies

Abstract

This study examines the static and dynamic connectedness between renewable energy cryptocurrencies and the GCC stock market using the TVP-VAR and DCC-GARCH approaches. Our findings indicate a significant connectedness between the GCC stock markets and energy cryptocurrencies. Moreover, the total connectedness is higher during COVID-19 than pre-COVID-19, highlighting the heightened sensitivity to extreme events within the financial system. The energy cryptocurrencies act as net receivers of return spillovers, while GCC stock markets predominantly act as net transmitters in the overall interconnectedness framework. Our findings imply that adding energy cryptocurrencies to stock portfolios can mitigate risk and optimize portfolio performance. The findings also indicate that energy cryptocurrencies offer a potential diversification avenue and can act as a hedge during periods of higher market uncertainty. The hedging ratios are low, implying the relatively low cost of hedging risks of portfolio stocks through energy cryptocurrencies. These insights provide valuable guidance for investors and policymakers regarding portfolio management, hedging, and financial markets' stability.