Journal of Energy Markets

Dynamic connectedness between energy markets and cryptocurrencies: evidence from the Covid-19 pandemic

Murad Harasheh, Ahmed Bouteska and May H. Hammad

  • Using TVP-VAR and the joint connectedness approach, we study the connectedness between cryptocurrencies and international energy markets.
  • The COVID-19 pandemic shocks appear to influence the system-wide dynamic connectedness of both markets.
  • Findings justify that each cryptocurrency and energy stock has heterogeneous roles transmitters or receivers- conditional on their internal characteristics and external shocks.
  • We provide insights for portfolio re-balancing and policy implications.

The Covid-19 pandemic affected financial markets in several ways, influencing the dynamics of the relationships between asset classes. We investigate the connectedness between cryptocurrencies and international energy markets from 2018 to 2021 using the time-varying parameter vector autoregression approach. Net total directional connectedness suggests that the cryptocurrency and energy indexes had heterogeneous roles. Bitcoin and Ripple coin were the net receivers of shocks, while Ethereum switched from receiver to transmitter. The US energy market was a persistent net transmitter of shocks, while Asian energy markets were consistent net shock receivers. Pairwise connectedness reveals that cryptocurrencies can explain the volatility of the energy markets during the difficult period of the pandemic at the beginning of 2020. We provide insights for portfolio optimization and policy implications.

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