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Summary
This study examines the dynamic spillover effects in the cryptocurrency market before and after the COVID-19 pandemic. It uses a tail-event driven network approach to analyze the risk propagation mechanism among cryptocurrencies under extreme events.
Highlights
- The study analyzes the dynamic spillover effects in the cryptocurrency market before and after the COVID-19 pandemic.
- A tail-event driven network approach is used to examine the risk propagation mechanism among cryptocurrencies.
- The study finds that the pandemic has increased the systemic risk of the cryptocurrency market.
- The risk spillover effect among cryptocurrencies becomes more significant under the influence of the pandemic.
- Tether is found to consistently play the role of a risk diversifier in the market.
- The study suggests that market regulators and investors can adopt strategies to mitigate contagion risk in cryptocurrency markets.
- Continuous analysis of the cryptocurrency market is key to reducing contagion risk.
Key Insights
- The COVID-19 pandemic has significantly increased the systemic risk of the cryptocurrency market, making it more susceptible to shocks transmitted among different coins.
- The risk spillover effect among cryptocurrencies becomes more significant under the influence of the pandemic, indicating a higher contagion potential and vulnerability in the market.
- Tether is found to consistently play the role of a risk diversifier in the market, suggesting that investors may consider holding Tether-like cryptocurrencies to hedge against risks.
- The study highlights the importance of continuous analysis of the cryptocurrency market to identify potential sources of risk and determine which currencies face the greatest threat.
- Implementing robust risk management strategies is essential for reducing contagion risk within the cryptocurrency market, particularly during periods of heightened systemic risk.
- The study suggests that regulatory bodies in different countries should strengthen oversight to detect and prevent systemic risks, which may include compliance checks of cryptocurrency exchanges and enhancing transaction transparency.
- Recognizing the risk-diversification role of stablecoins like Tether, governments might consider supporting stablecoin development to offer safer asset options, thereby safeguarding market integrity and stability while reducing contagion risk.
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Citation
Lan, W. (2024). A Dynamic Spillover Effect Investigation on Cryptocurrency Market Before and After Pandemic (Version 1). arXiv. https://doi.org/10.48550/ARXIV.2412.19983