Cointegration and Dynamic Spillovers between Cryptocurrencies and Other Financial Assets

Abstract

This paper investigates the long-term relationships and dynamic spillovers between cryptocurrencies and other financial assets by using cointegration, causality tests, impulse response functions, and volatility spillovers. The results reveal that there are long-term relationships between cryptocurrencies, stocks, fixed income, and commodity markets. For short-term spillovers, coin returns cause token, stock, and gold returns. Meanwhile, stock returns cause token returns. Coin and token returns respond immediately to each other’s shocks by the first period. The responses of coin and token returns to shocks in other markets are not significant. Shocks to traditional assets do not affect cryptocurrency volatility. Therefore, cryptocurrencies might be of benefit to portfolio diversification due to their minor linkages with other financial assets.