The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets

The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets The financial contagion effects of the global covid 19 pandemic evidence from fintech and traditional financial markets

i ii STATEMENT OF AUTHORSHIP I declare that this submission is my work and, except where due reference is made; this dissertation contains no material previously published or written by another person(s) This dissertation does not contain material extracted in the whole or part from the dissertation or report presented for another degree or diploma in University of Economics Ho Chi Minh city or any other educational institution January 2023 Pham Thi Ngoc Dung iii ACKNOWLEDGMENT First of all, I would like to express my best gratitude to Assoc.Prof Nguyen Khac Quoc Bao and Dr Le Dat Chi, who helped me with their valuable mentorship during my dissertation stages for many years at the University of Economics Ho Chi Minh City I also would like to thank all the support from my colleagues at the University of Economics Ho Chi Minh City during my study I would especially like to thank my faculty (Faculty of Finance and Banking) and my university (Ton Duc Thang University) for providing me with an opportunity to pursue a Ph.D In addition, I also express my gratefulness to all of my colleagues in my faculty who support my work at Ton Duc Thang University when I conduct my dissertation Most importantly, this dissertation is dedicated to my family They help me in providing encouragement as I work to complete my dissertation Pham Thi Ngoc Dung iv TABLE OF CONTENT ACKNOWLEDGMENT iii TABLE OF CONTENT iv LIST OF ABBREVIATIONS vii LIST OF TABLES viii LIST OF FIGURES .ix ABSTRACT OF THE THESIS .x CHAPTER 1: INTRODUCTION 1.1 Research Background 1.2 Research context 1.2.1 The adoption of cryptocurrency in Asia emerging countries 1.2.2 The impact of the global Covid-19 pandemic on the financial market 1.3 Research objectives and scope 11 1.3.1 Research objectives 11 1.3.2 Research scope .12 1.4 The research questions .12 1.5 Methodology 13 1.6 The research contributions 14 1.6.1 Theory contribution 14 1.6.2 Practice implications 18 1.7 Dissertation structure 19 CHAPTER 2: LITERATURE REVIEW 20 2.1 Definitions .20 v 2.1.1 Definitions of hedge and safe haven properties .20 2.1.2 Contagion Definitions 21 2.2 Theoretical literature on the international propagation of shocks 28 2.2.1 Non-crisis-contingent theories 29 2.2.2 Crisis-Contingent Theories .30 2.3 Literature on the connectedness between Bitcoin, altcoins, and other financial markets .34 2.3.1 The Interdependence between Bitcoin, altcoins, and traditional financial markets 35 2.3.2 The contagion effect between Bitcoin, altcoins, and traditional financial markets 39 2.3.3 The Impact of Covid on the Relationship Between Stock Market and Cryptocurrency Market 43 2.4 The Research Gap .47 2.5 Hypothesis development .54 2.6 Conceptual framework .62 2.7 Conclusions 63 CHAPTER 3: METHODOLOGY 65 3.1 Data set 65 3.2 Identification of the Turmoil Period 67 3.3 Models for testing the hypotheses 69 3.3.1 Hypotheses tested for the safe haven properties of Bitcoin and Altcoins 70 3.3.2 Hypothesis tested for the contagion effect between the the cryptocurrency market and the the stock market 73 3.3.3 Hypothesis tested for the transmission mechanism of the contagion effect between the the cryptocurrency market and the the stock market 80 vi CHAPTER 4: EMPIRICAL RESULTS AND DISCUSSION .83 4.1 The hedge and safe haven properties of cryptocurrencies during the Covid-19 pandemic 84 4.1.1 The hedge and safe haven properties of Bitcoin 86 4.1.2 The hedge and safe haven properties of altcoins 89 4.2 Empirical results on the contagion effect 96 4.2.1 Contagion effect in terms of a change in time-varying correlation .96 4.2.2 Contagion effect in terms of a change in mean spillover and volatility spillover 99 4.3 The transmission mechanism of the contagion effect between the stock market and the cryptocurrency market during the Covid-19 period 113 4.4 Discussion 119 CHAPTER 5: CONCLUSION 129 5.1 Conclusions 129 5.2 Key contributions 132 5.3 Implications .133 5.3.1 Implications for Investors .133 5.3.2 Implications for Policy Markers 136 5.4 Limitations and recommendations for further research .141 PUBLICATION 143 REFERENCES 144 vii LIST OF ABBREVIATIONS Altcoins Alternative coins ARDL Auto Regressive Distributed-Lag Model BEKK Baba-Engle-Kraft-Kroner BIT Bitcoin COVID-19 The coronavirus disease DCC Dynamic Conditional Correlation ETH Ethereum GARCH Generalized AutoRegressive Conditional Heteroskedasticity GDP Gross domestic product Fintech Financial technology VAR Vector Autoregressive viii LIST OF TABLES Table 1.1: The 2021 Global Crypto Adoption Index - Top 15 countries………… Table 2.1: A summary of empirical studies examining the contagion effect between the bitcoin / altcoin market and the traditional financial market………………… 50 Table 3.1 : Covid-19 arrival date…………………… …………………… …… 67 Table 3.2: Data Description…………………… …………………… ………… 69 Table 4.1: Descriptive statistics of Return Series (Full sample) ……………….….83 Table 4.2: Testing for Safe Haven Properties of Bitcoin…………………… ……87 Table 4.3: Testing for safe haven properties of Ethereum…………………… … 90 Table 4.4: T-test for DCC of Bitcoin-Stock pair…………………… ………… 97 Table 4.5: T-test for DCC of Ethereum-Stock pair…………………………… …98 Table 4.6: Parameter estimates for the mean and variance equations: Full period_Dummy: DCOV…………………… ………………… …………….….101 Table 4.7: Parameter estimates for the mean and variance equations: Covid-19 period_Dummy: DPI…………………… …………………… …………… …103 Table 4.8: Parameter estimates for the mean and variance equations: Covid-19 period_Dummy: DMHI…………………… …………………… …………… 105 Table 4.9: Parameter estimates for the mean and variance equations: Covid-19 period_Dummy: DSI…………………… ……………………………………….106 Table 4.10: Summary of the mean contagion effect…………………… …… 107 Table 4.11: Wald test of restrictions on spillover parameter: Covid-19 period and high panic period…………………… …………………… …………………….110 Table 4.11(const): Wald test of restrictions on spillover parameter: High media hype period and negative sentiment period…………………… ……………… 111 Table 4.12: T-test for the contagion channel between Bitcoin market and Stock market…………………… …………………… …………………… ……… 114 Table 4.13: T-test for the contagion channel between Ethereum market and Stock market…………………… …………………… …………………………… …117 ix LIST OF FIGURES Figure 1.1: Global Crypto Adoption Index…………………………………………4 Figure 1.2: Emerging Asian stock price return over the period 2016-2021.……… Figure 1.3: Bitcoin and Ethereum return over the period 2016-2021 ……… … 10 Figure 2.1: The research framework.……… ……… …… ……… …… …… 63 Figure 4.1: DCC - GARCH estimates for Bitcoin and stock indices……………….85 Figure 4.2: DCC - GARCH estimates for Ethereum and stock indices ……… … 86 x SOCIAL REPUBLIC OF VIETNAM Independence – Freedom – Hanppiness ABSTRACT OF THE THESIS Thesis title: THE FINANCIAL CONTAGION EFFECTS OF THE GLOBAL COVID-19 PANDEMIC: EVIDENCE FROM FINTECH AND TRADITIONAL FINANCIAL MARKETS Major: Finance Ph.D Student: Pham Thi Ngoc Dung Keywords: Covid-19, Cryptocurrency, Fintech, Contagion, Safe Haven, Spillover, Volatility, Wealth effect Abstract: In this thesis, we investigate the contagion effect of the global Covid-19 pandemic in terms of the shift in mean spillover, volatility spillover, and timevarying correlation between Asian emerging stock and Bitcoin, as well as between stock and altcoins The trivariate GARCH-BEKK models are estimated, which include Covid-19 related dummies corresponding to the Covid-19 arrival date, the panic index, the media hype index, and the sentiment index The time-varying correlation obtained through the DCC-GARCH model between two markets is under investigation to examine the transmission mechanism of the contagion effect and the safe-haven properties of Bitcoin and altcoins during various contexts of the Covid-19 pandemic Our results indicate that both Bitcoin and altcoin cannot serve as a safe haven against Asian emerging stock markets in most contexts of this rapidly escalating pandemic, as we find evidence of the presence of a contagion effect, both in terms of a shift in mean spillover, volatility spillover, and dynamic correlation, between Asian emerging stock markets and cryptocurrency markets ... REPUBLIC OF VIETNAM Independence – Freedom – Hanppiness ABSTRACT OF THE THESIS Thesis title: THE FINANCIAL CONTAGION EFFECTS OF THE GLOBAL COVID- 19 PANDEMIC: EVIDENCE FROM FINTECH AND TRADITIONAL FINANCIAL. .. can impact the risk and performance of their current portfolio during high uncertainty periods 1.2.2 The impact of the global Covid- 19 pandemic on the financial market The Covid- 19 pandemic has... result of the global Covid- 19 outbreak, although the size of the decline and the nature of the rebound that followed differed greatly The global stock markets experienced dramatic drops following the