Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression
This paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s conta...
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| Format: | Article |
| Language: | English |
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MDPI AG
2022-06-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/10/12/2116 |
| _version_ | 1797484693415788544 |
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| author | Ruzita Abdul-Rahim Airil Khalid Zulkefly Abdul Karim Mamunur Rashid |
| author_facet | Ruzita Abdul-Rahim Airil Khalid Zulkefly Abdul Karim Mamunur Rashid |
| author_sort | Ruzita Abdul-Rahim |
| collection | DOAJ |
| description | This paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s containment and health responses to COVID-19. Wavelet Coherence heatmaps show that the stock-cryptocurrency comovements increase significantly and positively during the pandemic, indicating that cryptocurrencies lose their safe haven properties against stocks during the heightened market uncertainties. Over the longer investment horizons, Bitcoin reemerges as a safe haven or strong hedger while Ethereum’s properties weaken. Seemingly Unrelated Regression results reveal that the stock-cryptocurrency comovements are rationally explained by market uncertainties, government responses to COVID-19, and market fundamentals. However, the comovements are also driven by the fear of COVID-19 to a certain extent. Our findings offer valuable insights for investors considering cryptocurrencies to rebalance their equity portfolios during market distress. For policymakers, the Economic Policy Uncertainty (EPU) results suggest that government policies and regulatory frameworks can be used to regulate speculation and investment activities in the cryptocurrency market. |
| first_indexed | 2024-03-09T23:08:03Z |
| format | Article |
| id | doaj.art-9b6e32d42d0147799b4b9bcf02efa40e |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-09T23:08:03Z |
| publishDate | 2022-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-9b6e32d42d0147799b4b9bcf02efa40e2023-11-23T17:49:58ZengMDPI AGMathematics2227-73902022-06-011012211610.3390/math10122116Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated RegressionRuzita Abdul-Rahim0Airil Khalid1Zulkefly Abdul Karim2Mamunur Rashid3Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, MalaysiaSchool of Economics, Finance and Banking, Universiti Utara Malaysia, Sintok 06010, Kedah, MalaysiaFaculty of Economics and Management, Universiti Kebangsaan Malaysia, Bangi 43600, Selangor, MalaysiaChrist Church Business School, Canterbury Christ Church University, North Holmes Road, Canterbury CT1 1QU, UKThis paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s containment and health responses to COVID-19. Wavelet Coherence heatmaps show that the stock-cryptocurrency comovements increase significantly and positively during the pandemic, indicating that cryptocurrencies lose their safe haven properties against stocks during the heightened market uncertainties. Over the longer investment horizons, Bitcoin reemerges as a safe haven or strong hedger while Ethereum’s properties weaken. Seemingly Unrelated Regression results reveal that the stock-cryptocurrency comovements are rationally explained by market uncertainties, government responses to COVID-19, and market fundamentals. However, the comovements are also driven by the fear of COVID-19 to a certain extent. Our findings offer valuable insights for investors considering cryptocurrencies to rebalance their equity portfolios during market distress. For policymakers, the Economic Policy Uncertainty (EPU) results suggest that government policies and regulatory frameworks can be used to regulate speculation and investment activities in the cryptocurrency market.https://www.mdpi.com/2227-7390/10/12/2116containment and Health IndexCOVID-19 pandemichedgeinvestor sentimentmarket uncertaintiespublic’s attention |
| spellingShingle | Ruzita Abdul-Rahim Airil Khalid Zulkefly Abdul Karim Mamunur Rashid Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression Mathematics containment and Health Index COVID-19 pandemic hedge investor sentiment market uncertainties public’s attention |
| title | Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression |
| title_full | Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression |
| title_fullStr | Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression |
| title_full_unstemmed | Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression |
| title_short | Exploring the Driving Forces of Stock-Cryptocurrency Comovements during COVID-19 Pandemic: An Analysis Using Wavelet Coherence and Seemingly Unrelated Regression |
| title_sort | exploring the driving forces of stock cryptocurrency comovements during covid 19 pandemic an analysis using wavelet coherence and seemingly unrelated regression |
| topic | containment and Health Index COVID-19 pandemic hedge investor sentiment market uncertainties public’s attention |
| url | https://www.mdpi.com/2227-7390/10/12/2116 |
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