AAA Spark Meeting of the Regions

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Tracing Contagion Risk: From Crypto or Stock?

Thu, June 1, 3:30 to 4:30pm, Virtual, TBA

Abstract

The increasing crypto-stock comovement has spurred concerns over digital assets’ ripple effects and systemic risks. We closely examine this comovement and report two findings. First, the crypto-stock correlation hovered around zero before March 2020 but increased strikingly after. This shift appears to be fueled by the Federal Reserve’s response to the COVID-19 pandemic. Second, we find little evidence of crypto shocks being transmitted to stock but observe volatility spillovers in reverse. Further evidence links the increased crypto-stock comovement post-COVID to a growing involvement of institutional investors in the crypto markets, whose trades are likely sensitive to monetary policy changes.

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