Non-linear relationship between oil and cryptocurrencies: evidence from returns and shocks
Non-linear relationship between oil and cryptocurrencies: evidence from returns and shocks
The price instabilities between oil prices and cryptocurrencies have motivated the current study to examine the nonlinear relationship between oil returns/shocks and cryptocurrencies during March 3, 2018 to October 10, 2021. We employed a novel methodology of cross-quantilogram to unveil the nonlinearity and asymmetry between oil shocks and cryptocurrencies. We find that when markets are normal and bullish, there is a positive correlation between oil returns and cryptocurrency returns at first lag; however, there is a negative correlation between oil returns and cryptocurrencies in all market conditions. Moreover, rising fluctuations in oil demand shocks brings significant movement in cryptocurrency returns in bearish market conditions and it is unlikely that oil demand shocks and cryptocurrencies returns move in same directions. Given these results, we proposed useful implications for policymakers, strategists, regulators, financial market participants, and investors to hedge/diversify their risk.
cross-quantilogram, cryptocurrencies, non-linearity, oil shocks, returns
Naeem, Muhammad Abubakr
959d6cc4-53d1-47dc-8c3c-0354a08633d7
Karim, Sitara
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Abrar, Afsheen
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Yarovaya, Larisa
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Shah, Adil Ahmad
319a244a-39a2-436b-8b1c-88d003a518de
4 July 2023
Naeem, Muhammad Abubakr
959d6cc4-53d1-47dc-8c3c-0354a08633d7
Karim, Sitara
1f712808-acf8-4b84-b157-0464f326704c
Abrar, Afsheen
cdaf3e7e-4ad8-4504-9fa2-1efcb9bb9542
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Shah, Adil Ahmad
319a244a-39a2-436b-8b1c-88d003a518de
Naeem, Muhammad Abubakr, Karim, Sitara, Abrar, Afsheen, Yarovaya, Larisa and Shah, Adil Ahmad
(2023)
Non-linear relationship between oil and cryptocurrencies: evidence from returns and shocks.
International Review of Financial Analysis, 89, [102769].
(doi:10.1016/j.irfa.2023.102769).
Abstract
The price instabilities between oil prices and cryptocurrencies have motivated the current study to examine the nonlinear relationship between oil returns/shocks and cryptocurrencies during March 3, 2018 to October 10, 2021. We employed a novel methodology of cross-quantilogram to unveil the nonlinearity and asymmetry between oil shocks and cryptocurrencies. We find that when markets are normal and bullish, there is a positive correlation between oil returns and cryptocurrency returns at first lag; however, there is a negative correlation between oil returns and cryptocurrencies in all market conditions. Moreover, rising fluctuations in oil demand shocks brings significant movement in cryptocurrency returns in bearish market conditions and it is unlikely that oil demand shocks and cryptocurrencies returns move in same directions. Given these results, we proposed useful implications for policymakers, strategists, regulators, financial market participants, and investors to hedge/diversify their risk.
Text
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Accepted/In Press date: 27 June 2023
e-pub ahead of print date: 28 June 2023
Published date: 4 July 2023
Keywords:
cross-quantilogram, cryptocurrencies, non-linearity, oil shocks, returns
Identifiers
Local EPrints ID: 480510
URI: http://eprints.soton.ac.uk/id/eprint/480510
ISSN: 1057-5219
PURE UUID: 7a528c74-d434-4def-b7bf-306cb84c729c
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Date deposited: 03 Aug 2023 17:19
Last modified: 17 Mar 2024 03:54
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Contributors
Author:
Muhammad Abubakr Naeem
Author:
Sitara Karim
Author:
Afsheen Abrar
Author:
Adil Ahmad Shah
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