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THE CONTAGION EFFECTS OF COVID-19 PANDEMIC ON CRYPTOCURRENCIES
Corresponding Author(s) : Mahboob Ullah
Humanities & Social Sciences Reviews,
Vol. 9 No. 2 (2021): March
Abstract
Purpose of the Study: In this research, the association between the COVID-19 pandemic and cryptocurrencies' price volatility has been examined.
Methodology: To check the contagion effects of the COVID-19 pandemic on the price volatility of cryptocurrencies: BITCOIN, LITECOIN, XRP(RIPPLE), and ETHEREUM, the prices of all four are deployed from 10th August 2016 to 10th August 2020. The exponential generalized autoregressive conditional heteroscedastic (EGARCH) model is used to check the leverage effect exists or not. Stata 16 has been used to execute all the tests.
Main Findings: The study's findings indicated that the leverage effect on the price volatility is present for LITECOIN, XRP(RIPPLE), and ETHEREUM but not for BITCOIN.
Applications of the study: This study is significant for investors to develop strategies for investments and secure the transactions and control the creation of additional currency units. Also, it gives insight to the policy and decision-makers to articulate proper guidelines to overcome or minimize the effect of COVID-19 on cryptocurrency.
Novelty/Originality of this Study: The motive for taking the crypto market into account is that the crypto market is one of the emerging markets and has started to have significance worldwide, linking with financial markets and economic growth. The leverage effect of COVID-19 is considered in this study as the epidemic has affected the supply and demand of goods due to lockdowns, blockages, and disruptions in delivery chains that lead to undiminished economic growth.
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- Ali, S. R. (2020). The pattern, sources, and growth of remittances to Pakistan: The kinked exponential approach. Journal of Research in Emerging Markets, 2(1):1-6. https://doi.org/10.30585/jrems.v2i1.383 DOI: https://doi.org/10.30585/jrems.v2i1.383
- Abdelrhim, M., Elsayed, A., Mohamed, M., & Farouh, M. (2020). Investment opportunities in the time of (covid-19) spread: the case of cryptocurrencies and metals markets. https://doi.org/10.2139/ssrn.3640333 DOI: https://doi.org/10.2139/ssrn.3640333
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- Bhosale, J., & Mavale, S. (2018). The volatility of select cryptocurrencies: a comparison of bitcoin, ethereum, and litecoin. Annual Research Journal of SCMS, Pune, 6, 97-105.
- Celeste, V., Corbet, S., & Gurdgiev, C. (2020). Fractal dynamics and wavelet analysis: deep volatility and return properties of bitcoin, ethereum, and Ripple. The Quarterly Review of Economics and Finance, 76, 310-324. https://doi.org/10.1016/j.qref.2019.09.011 DOI: https://doi.org/10.1016/j.qref.2019.09.011
- Cheng, H. P., & Yen, K. C. (2020). Does COVID-19 affect the financial market?. Available at SSRN 3578263. https://doi.org/10.2139/ssrn.3578263 DOI: https://doi.org/10.2139/ssrn.3578263
- Demir, E., Bilgin, M. H., Karabulut, G., & Doker, A. C. (2020). The relationship between cryptocurrencies and COVID-19 pandemic. Available at SSRN 3585147. https://doi.org/10.2139/ssrn.3585147 DOI: https://doi.org/10.2139/ssrn.3585147
- Engle, R. (2001), GARCH 101: The Use of ARCH/GARCH models in applied econometrics. Journal of Economic Perspectives, 15(4), 157-168. https://doi.org/10.1257/jep.15.4.157 DOI: https://doi.org/10.1257/jep.15.4.157
- Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431-437. https://doi.org/10.1016/j.irfa.2018.03.004 DOI: https://doi.org/10.1016/j.irfa.2018.03.004
- Harvey, A., Sucarrat, G. (2014), EGARCH models with fat tails, Skewness and leverage. Computational Statistics and Data Analysis, 76(1), 320-338. https://doi.org/10.1016/j.csda.2013.09.022 DOI: https://doi.org/10.1016/j.csda.2013.09.022
- Iqbal, T.H., Mallikarjunappa, T. (2010), A study of Efficiency of the Indian stock market. Indian Journal of Finance, 4(5), 32-38.
- Iqbal, T.H., Mallikarjunappa, T. (2011), Efficiency of the stock market: a study of stock price responses to earnings announcements. Germany: LAP Lambert Academic Publishing Company.
- Jabotinsky, H. Y., & Sarel, R. (2020). How crisis affects crypto: coronavirus as a test case. Available at SSRN 3557929. https://doi.org/10.2139/ssrn.3557929 DOI: https://doi.org/10.2139/ssrn.3557929
- Khan, A. M., Ullah, M., Usman, A., Malik, A. H., Khan, K. M. (2020). Impact of covid-19 on the global economy. International Journal of Management, 11(8), 2020, pp. 956-969
- Kristofer, L. (2020). Grandpa, grandpa, tells me about Bitcoin being a haven: evidence from the COVID-19 pandemics. arXiv preprint arXiv:2004.00047. https://doi.org/10.3389/fphy.2020.00296 DOI: https://doi.org/10.3389/fphy.2020.00296
- Kumar, B., Ali, S. R., & Kibria, M. G. (2021). International remittances, household welfare, and women Empowerment: evidence from Bangladesh. In Dixit, S., & Moid, S. (Ed.), 174-190). https://doi.org/10.4018/978-1-7998-3737-4.ch012 DOI: https://doi.org/10.4018/978-1-7998-3737-4.ch012
- Liu, K. (2020). The Effects of COVID-19 on Chinese stock markets: an arch approach. https://doi.org/10.1108/JCEFTS-08-2020-0055 DOI: https://doi.org/10.1108/JCEFTS-08-2020-0055
- Meher, B. K., Hawaldar, I. T., Mohapatra, L., & Sarea, A. (2020). The Impact of COVID-19 on price volatility of crude oil and natural gas listed on multi commodity exchange of India. International Journal of Energy Economics and Policy, 10(5), 422-431. https://doi.org/10.32479/ijeep.10047 DOI: https://doi.org/10.32479/ijeep.10047
- Mnif, E., Jarboui, A., & Mouakhar, K. (2020). How the cryptocurrency market has performed during COVID 19? A multifractal analysis. Finance Research Letters, 101647. https://doi.org/10.1016/j.frl.2020.101647 DOI: https://doi.org/10.1016/j.frl.2020.101647
- Mukherjee, I., Goswami, B. (2017), The volatility of returns from commodity futures: Evidence from India. Financial Innovation, 3(15), 1-23. https://doi.org/10.1186/s40854-017-0066-9 DOI: https://doi.org/10.1186/s40854-017-0066-9
- Romanchenko, O., Shemetkova, O., Piatanova, V., & Kornienko, D. (2018). The approach of estimation of the fair value of assets on a cryptocurrency market. 2018 International Conference on Digital Science (pp. 245-253). Springer, Cham. https://doi.org/10.1007/978-3-030-02351-5_29 DOI: https://doi.org/10.1007/978-3-030-02351-5_29
- Saeed, S. K., Riaz, K., & Ayub, U. (2013). Financial contagion in South Asia: an EGARCH approach. American Journal of Scientific Research, 85-105. https://doi.org/10.2139/ssrn.2241389 DOI: https://doi.org/10.2139/ssrn.2241389
- Soylu, P. K., Okur, M., Çatıkkaş, Ö., & Altintig, Z. A. (2020). Long memory in the volatility of selected cryptocurrencies: bitcoin, ethereum, and Ripple. Journal of Risk and Financial Management, 13(6), 107. https://doi.org/10.3390/jrfm13060107 DOI: https://doi.org/10.3390/jrfm13060107
- Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from bitcoin, ethereum, dash, bitcoin, and monero. Journal of Economics and Financial Analysis, 2(2), 1-27.
- Syed Rashid Ali, Muhammad Waqar Khan, Zeeshan Atiq and Muhammad Wajahat Ali, (2021). The impact of geographical distance on remittances: a case study of the Pakistani diaspora. International Journal of Management, 12(1), pp 65-72.
- Ullah, M., Shaikh, M., Channar, P., & Shaikh, S., (2021). Financial forecasting: an individual perspective. International Journal of Management, 12(3), 60-69.
- Yarovaya, L., Matkovskyy, R., & Jalan, A. (2020). The effects of a black swan event (covid-19) on herding behavior in cryptocurrency markets: evidence from cryptocurrency USD, EUR, JPY, and KRW Markets. EUR, JPY, and KRW Markets. Finance Research Letters, 101897. https://doi.org/10.2139/ssrn.3586511 DOI: https://doi.org/10.2139/ssrn.3586511
- Zhou, S. (2018). Exploring the driving forces of the bitcoin exchange rate dynamics: an EGARCH. Journal of Finance, 49(3), 923–950.
References
Ali, S. R. (2020). The pattern, sources, and growth of remittances to Pakistan: The kinked exponential approach. Journal of Research in Emerging Markets, 2(1):1-6. https://doi.org/10.30585/jrems.v2i1.383 DOI: https://doi.org/10.30585/jrems.v2i1.383
Abdelrhim, M., Elsayed, A., Mohamed, M., & Farouh, M. (2020). Investment opportunities in the time of (covid-19) spread: the case of cryptocurrencies and metals markets. https://doi.org/10.2139/ssrn.3640333 DOI: https://doi.org/10.2139/ssrn.3640333
Baker McKenzie. (2020), International: The Impact of COVID-19 on the Oil and Gas Industry. https://www.bakermckenzie.com; https://www.bakermckenzie.com/en/insight/publications/2020/04/the-impact-of-covid19-on- the-oil-and-gas-industry
Bhosale, J., & Mavale, S. (2018). The volatility of select cryptocurrencies: a comparison of bitcoin, ethereum, and litecoin. Annual Research Journal of SCMS, Pune, 6, 97-105.
Celeste, V., Corbet, S., & Gurdgiev, C. (2020). Fractal dynamics and wavelet analysis: deep volatility and return properties of bitcoin, ethereum, and Ripple. The Quarterly Review of Economics and Finance, 76, 310-324. https://doi.org/10.1016/j.qref.2019.09.011 DOI: https://doi.org/10.1016/j.qref.2019.09.011
Cheng, H. P., & Yen, K. C. (2020). Does COVID-19 affect the financial market?. Available at SSRN 3578263. https://doi.org/10.2139/ssrn.3578263 DOI: https://doi.org/10.2139/ssrn.3578263
Demir, E., Bilgin, M. H., Karabulut, G., & Doker, A. C. (2020). The relationship between cryptocurrencies and COVID-19 pandemic. Available at SSRN 3585147. https://doi.org/10.2139/ssrn.3585147 DOI: https://doi.org/10.2139/ssrn.3585147
Engle, R. (2001), GARCH 101: The Use of ARCH/GARCH models in applied econometrics. Journal of Economic Perspectives, 15(4), 157-168. https://doi.org/10.1257/jep.15.4.157 DOI: https://doi.org/10.1257/jep.15.4.157
Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431-437. https://doi.org/10.1016/j.irfa.2018.03.004 DOI: https://doi.org/10.1016/j.irfa.2018.03.004
Harvey, A., Sucarrat, G. (2014), EGARCH models with fat tails, Skewness and leverage. Computational Statistics and Data Analysis, 76(1), 320-338. https://doi.org/10.1016/j.csda.2013.09.022 DOI: https://doi.org/10.1016/j.csda.2013.09.022
Iqbal, T.H., Mallikarjunappa, T. (2010), A study of Efficiency of the Indian stock market. Indian Journal of Finance, 4(5), 32-38.
Iqbal, T.H., Mallikarjunappa, T. (2011), Efficiency of the stock market: a study of stock price responses to earnings announcements. Germany: LAP Lambert Academic Publishing Company.
Jabotinsky, H. Y., & Sarel, R. (2020). How crisis affects crypto: coronavirus as a test case. Available at SSRN 3557929. https://doi.org/10.2139/ssrn.3557929 DOI: https://doi.org/10.2139/ssrn.3557929
Khan, A. M., Ullah, M., Usman, A., Malik, A. H., Khan, K. M. (2020). Impact of covid-19 on the global economy. International Journal of Management, 11(8), 2020, pp. 956-969
Kristofer, L. (2020). Grandpa, grandpa, tells me about Bitcoin being a haven: evidence from the COVID-19 pandemics. arXiv preprint arXiv:2004.00047. https://doi.org/10.3389/fphy.2020.00296 DOI: https://doi.org/10.3389/fphy.2020.00296
Kumar, B., Ali, S. R., & Kibria, M. G. (2021). International remittances, household welfare, and women Empowerment: evidence from Bangladesh. In Dixit, S., & Moid, S. (Ed.), 174-190). https://doi.org/10.4018/978-1-7998-3737-4.ch012 DOI: https://doi.org/10.4018/978-1-7998-3737-4.ch012
Liu, K. (2020). The Effects of COVID-19 on Chinese stock markets: an arch approach. https://doi.org/10.1108/JCEFTS-08-2020-0055 DOI: https://doi.org/10.1108/JCEFTS-08-2020-0055
Meher, B. K., Hawaldar, I. T., Mohapatra, L., & Sarea, A. (2020). The Impact of COVID-19 on price volatility of crude oil and natural gas listed on multi commodity exchange of India. International Journal of Energy Economics and Policy, 10(5), 422-431. https://doi.org/10.32479/ijeep.10047 DOI: https://doi.org/10.32479/ijeep.10047
Mnif, E., Jarboui, A., & Mouakhar, K. (2020). How the cryptocurrency market has performed during COVID 19? A multifractal analysis. Finance Research Letters, 101647. https://doi.org/10.1016/j.frl.2020.101647 DOI: https://doi.org/10.1016/j.frl.2020.101647
Mukherjee, I., Goswami, B. (2017), The volatility of returns from commodity futures: Evidence from India. Financial Innovation, 3(15), 1-23. https://doi.org/10.1186/s40854-017-0066-9 DOI: https://doi.org/10.1186/s40854-017-0066-9
Romanchenko, O., Shemetkova, O., Piatanova, V., & Kornienko, D. (2018). The approach of estimation of the fair value of assets on a cryptocurrency market. 2018 International Conference on Digital Science (pp. 245-253). Springer, Cham. https://doi.org/10.1007/978-3-030-02351-5_29 DOI: https://doi.org/10.1007/978-3-030-02351-5_29
Saeed, S. K., Riaz, K., & Ayub, U. (2013). Financial contagion in South Asia: an EGARCH approach. American Journal of Scientific Research, 85-105. https://doi.org/10.2139/ssrn.2241389 DOI: https://doi.org/10.2139/ssrn.2241389
Soylu, P. K., Okur, M., Çatıkkaş, Ö., & Altintig, Z. A. (2020). Long memory in the volatility of selected cryptocurrencies: bitcoin, ethereum, and Ripple. Journal of Risk and Financial Management, 13(6), 107. https://doi.org/10.3390/jrfm13060107 DOI: https://doi.org/10.3390/jrfm13060107
Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from bitcoin, ethereum, dash, bitcoin, and monero. Journal of Economics and Financial Analysis, 2(2), 1-27.
Syed Rashid Ali, Muhammad Waqar Khan, Zeeshan Atiq and Muhammad Wajahat Ali, (2021). The impact of geographical distance on remittances: a case study of the Pakistani diaspora. International Journal of Management, 12(1), pp 65-72.
Ullah, M., Shaikh, M., Channar, P., & Shaikh, S., (2021). Financial forecasting: an individual perspective. International Journal of Management, 12(3), 60-69.
Yarovaya, L., Matkovskyy, R., & Jalan, A. (2020). The effects of a black swan event (covid-19) on herding behavior in cryptocurrency markets: evidence from cryptocurrency USD, EUR, JPY, and KRW Markets. EUR, JPY, and KRW Markets. Finance Research Letters, 101897. https://doi.org/10.2139/ssrn.3586511 DOI: https://doi.org/10.2139/ssrn.3586511
Zhou, S. (2018). Exploring the driving forces of the bitcoin exchange rate dynamics: an EGARCH. Journal of Finance, 49(3), 923–950.