Decentralized and centralized exchanges: which digital tokens pose a greater contagion risk?
Decentralized and centralized exchanges: which digital tokens pose a greater contagion risk?
This study explores the impact of trading activity on both centralized exchanges (CEXs) and decentralized exchanges (DEXs) on information transmission patterns between digital and traditional investment assets. Utilizing a quantile connectedness approach, we analyze the relationships among DEX tokens, CEX tokens, and various assets, including Gold, Oil, Bitcoin, REITs, Equity, Bonds, and the US dollar index. Our results reveal that in the lowest quantile, DEX
and CEX tokens primarily receive spillovers, while other assets act as the main transmitters. In contrast, in the upper quantile, DEX and CEX tokens become the primary transmitters of spillovers to other assets. These findings hold significant implications for financial portfolio management, as they demonstrate that during a short squeeze period, DEX-CEX tokens exhibit contagious effects on other assets, diminishing the effectiveness of risk management and portfolio strategies.
Furthermore, our study suggests that DEX-CEX tokens serve as optimal hedges for oil, offering a cost-effective alternative for hedging Gold and the USD Index.
Cryptocurrency, Decentralized exchanges: Centralized exchanges, Financial contagion, Tokens
Yousaf, Imran
4c6ebdab-7527-42b4-986b-94db0f2749e9
Abrar, Afsheen
cdaf3e7e-4ad8-4504-9fa2-1efcb9bb9542
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
December 2023
Yousaf, Imran
4c6ebdab-7527-42b4-986b-94db0f2749e9
Abrar, Afsheen
cdaf3e7e-4ad8-4504-9fa2-1efcb9bb9542
Yarovaya, Larisa
2bd189e8-3bad-48b0-9d09-5d96a4132889
Yousaf, Imran, Abrar, Afsheen and Yarovaya, Larisa
(2023)
Decentralized and centralized exchanges: which digital tokens pose a greater contagion risk?
Journal of International Financial Markets, Institutions and Money, 89, [101881].
(doi:10.1016/j.intfin.2023.101881).
Abstract
This study explores the impact of trading activity on both centralized exchanges (CEXs) and decentralized exchanges (DEXs) on information transmission patterns between digital and traditional investment assets. Utilizing a quantile connectedness approach, we analyze the relationships among DEX tokens, CEX tokens, and various assets, including Gold, Oil, Bitcoin, REITs, Equity, Bonds, and the US dollar index. Our results reveal that in the lowest quantile, DEX
and CEX tokens primarily receive spillovers, while other assets act as the main transmitters. In contrast, in the upper quantile, DEX and CEX tokens become the primary transmitters of spillovers to other assets. These findings hold significant implications for financial portfolio management, as they demonstrate that during a short squeeze period, DEX-CEX tokens exhibit contagious effects on other assets, diminishing the effectiveness of risk management and portfolio strategies.
Furthermore, our study suggests that DEX-CEX tokens serve as optimal hedges for oil, offering a cost-effective alternative for hedging Gold and the USD Index.
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DEX_CEX tokens_accepted manuscript
- Accepted Manuscript
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1-s2.0-S104244312300149X-main
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Accepted/In Press date: 2 November 2023
e-pub ahead of print date: 4 November 2023
Published date: December 2023
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Publisher Copyright:
© 2023 The Authors
Keywords:
Cryptocurrency, Decentralized exchanges: Centralized exchanges, Financial contagion, Tokens
Identifiers
Local EPrints ID: 485311
URI: http://eprints.soton.ac.uk/id/eprint/485311
ISSN: 1042-4431
PURE UUID: ed08d532-34b5-4256-8197-a640d19dfab2
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Date deposited: 04 Dec 2023 17:39
Last modified: 18 Mar 2024 03:50
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Author:
Imran Yousaf
Author:
Afsheen Abrar
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