Volatility spillovers between cryptocurrencies and stocks markets : a multivariate garch approach

Abstract

This paper examines the effect of digital currencies such as Ripple and Bitcoin volatility on other financial assets especially CAC40, S&P500, DAX, IBEX35 and NEFTY50. Our findings should be helpful for investors whose work depends on portfolio diversification to reduce risk. We scrutinize the volatility spillovers of Bitcoin and other stock market indices using Multivariate GARCH and its different specifications, BEKK and VECH. Our findings confirm the significant effect of Bitcoin volatility on the volatility of stock market indices especially for CAC40 and DAX. However, Ripple does not have the same effect of Bitcoin on stock market indices. In fact, the negative correlation of Ripple and stock market indices gives Ripple the privilege to be a hedging instrument to avoid risk, while Bitcoin acts as a speculative instrument.