Equity, cryptocurrency and precious metal markets: a TVP-VAR extended joint connectedness approach

Abstract

This paper examines the dynamic return and volatility connectedness among bitcoin, gold and MSCI World Index to analyze the effect of Russia-Ukraine War on the dynamic spillovers over these asset markets. Using daily data from December 10, 2017, when the first bitcoin future was launched in United States, to February 28, 2023, we employ the dynamic connectedness approach estimated from time-varying parameter vector autoregression (TVP-VAR) model. We find that both returns and volatility spillovers among the 3 markets surged with the outbreak of the invasion. During the COVID-19 outbreak and the Russian invasion, gold behaved as a net receiver of return and volatility spillover. Particularly, gold receives the most volatility spillover from other markets, especially during crises. Furthermore, the result in frequency domain connectedness analysis of the 3 markets revealed that the return linkages at very short term (1-5 days) is considerably larger than those in longer terms, suggesting the market information of volatility shocks is absorbed very quickly in these markets while volatility shocks can persist over longer term (20 days+). We also provide evidence of strengthened negative asymmetric volatility spillovers among the three markets during the crisis.