Abstract
The aim of this paper is to study the interdependence between the Coronavirus Panic Index (PI) and major cryptocurrencies throughout the period of the Covid-19 pandemic.We investigate the evolution of cryptocurrency’s value following changes in the Covid panic index levels; then, we use the DCC-MIDAS specification to extract the long- and short-term volatility components of cryptocurrencies and study the responses of the cryptocurrencies to the pandemic panic index. The results show that the panic level metrics could be considered as a potential driver of cryptocurrencies volatility and has a significantly positive influence on the long-term cryptocurrencies correlation during stress levels. Our findings contribute to the existing literature in several ways. First ,we provide specific evidence on the driving effect of Covid panic index on cryptocurrencies’correlation during a crisis. Second, our paper adds to the current literature on cryptocurrencies and fills in the existing gap related to the lack of academic research on the pandemic’s impact on the cryptocurrency market. Third, the results offer interesting insights for future research and have important implications for investors, especially in understanding the cryptocurrencies’behavior and exploring whether cryptocurrencies can serve as a hedge against the COVID-19 crisis.
Highlights
Since their introduction, cryptocurrencies had gained a lot of interest from researchers and investors as prospective speculative instruments regardless of the primary purpose of their use, as an instrument used for the purpose of decentralized peer-to-peer payments.The cryptocurrency market had been steadily expanding until 2017
We use the DCC-mixed data sampling (MIDAS) madel to allow the long-term correlation to be a function of explanatory variables, we show that the cryptocurrencies correlation is driven by the the ravenpack coronavirus panic index (PI)
Descriptive Statistics We examine the characteristics of the cryptocurrencies, and COVID panic index over the period December 2019–May 2021, incorporating the ongoing COVID-19 related market turmoil
Summary
Cryptocurrencies had gained a lot of interest from researchers and investors as prospective speculative instruments regardless of the primary purpose of their use, as an instrument used for the purpose of decentralized peer-to-peer payments. The cryptocurrency market had been steadily expanding until 2017. Investors’growing interest in crypto-assets and the exceptionally high volatility of their price conducted several recent empirical studies to focus on the dynamics of cryptocurrency returns. Liu and Tsyvinski (2018) provided empirical evidence showing that cryptocurrency returns cannot be explained by traditional asset pricing models and standard risk factors. The cryptocurrency markets represent a complex system in the domain of finance. Recent statistical analysis of cryptocurrency markets had identified features, such as very high volatility, long memory structures, and increased dependency of volatility
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: International Journal of Economics and Financial Issues
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
