Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic
The world has witnessed the adverse impact of the COVID-19 pandemic. Accordingly, it is expected that information transmission between equities and digital assets has been altered due to the hostile impact of the pandemic outbreak on financial markets. As a result, the ensuing perverse risk among ma...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Complexity |
| Online Access: | http://dx.doi.org/10.1155/2021/4753753 |
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| author | Emmanuel Asafo-Adjei Peterson Owusu Junior Anokye M. Adam |
| author_facet | Emmanuel Asafo-Adjei Peterson Owusu Junior Anokye M. Adam |
| author_sort | Emmanuel Asafo-Adjei |
| collection | DOAJ |
| description | The world has witnessed the adverse impact of the COVID-19 pandemic. Accordingly, it is expected that information transmission between equities and digital assets has been altered due to the hostile impact of the pandemic outbreak on financial markets. As a result, the ensuing perverse risk among markets is presumed to rise during severe uncertainties occasioned by the COVID-19 pandemic. The impetus of this study is to examine the degree of asymmetry and nonlinear directional causality between global equities and cryptocurrencies in the frequency domain. Hence, we employ both the variational mode decomposition (VMD) and the Rényi effective transfer entropy techniques. Analyses of the study are presented for three sample periods; these are the full sample period, the pre-COVID-19 period, and the COVID-19 pandemic period. We gauge a mixture of asymmetric and nonlinear bidirectional and unidirectional causality between global equities and cryptocurrencies for the sample periods. However, the COVID-19 pandemic period appears to be driving the estimates for the full sample period, which indicates a negative flow. Thus, the direction and significance of the information flow between the markets for the full sample correspond to the one observed during the COVID-19 pandemic period. We, consequently, establish a significant directional, dynamical, and scale-dependent information flow between global equities and cryptocurrencies. Notwithstanding, throughout the study samples, we mainly find a negative significant information flow from global equities to cryptocurrencies. We detect that most cryptocurrencies exhibit similar behaviour of information flow to global equities for each of the sample periods. The outcome provides pertinent signals to investors with diverse investment horizons who would want to diversify, hedge, or employ cryptocurrencies as a safe haven for global equities during uncertainties, specifically the COVID-19 pandemic. |
| format | Article |
| id | doaj-art-cabc2fbc7b5b4431b8c9b502bd71a3ee |
| institution | Kabale University |
| issn | 1076-2787 1099-0526 |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Complexity |
| spelling | doaj-art-cabc2fbc7b5b4431b8c9b502bd71a3ee2025-02-03T06:12:48ZengWileyComplexity1076-27871099-05262021-01-01202110.1155/2021/47537534753753Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 PandemicEmmanuel Asafo-Adjei0Peterson Owusu Junior1Anokye M. Adam2Department of Finance, School of Business, University of Cape Coast, Cape Coast, GhanaDepartment of Finance, School of Business, University of Cape Coast, Cape Coast, GhanaDepartment of Finance, School of Business, University of Cape Coast, Cape Coast, GhanaThe world has witnessed the adverse impact of the COVID-19 pandemic. Accordingly, it is expected that information transmission between equities and digital assets has been altered due to the hostile impact of the pandemic outbreak on financial markets. As a result, the ensuing perverse risk among markets is presumed to rise during severe uncertainties occasioned by the COVID-19 pandemic. The impetus of this study is to examine the degree of asymmetry and nonlinear directional causality between global equities and cryptocurrencies in the frequency domain. Hence, we employ both the variational mode decomposition (VMD) and the Rényi effective transfer entropy techniques. Analyses of the study are presented for three sample periods; these are the full sample period, the pre-COVID-19 period, and the COVID-19 pandemic period. We gauge a mixture of asymmetric and nonlinear bidirectional and unidirectional causality between global equities and cryptocurrencies for the sample periods. However, the COVID-19 pandemic period appears to be driving the estimates for the full sample period, which indicates a negative flow. Thus, the direction and significance of the information flow between the markets for the full sample correspond to the one observed during the COVID-19 pandemic period. We, consequently, establish a significant directional, dynamical, and scale-dependent information flow between global equities and cryptocurrencies. Notwithstanding, throughout the study samples, we mainly find a negative significant information flow from global equities to cryptocurrencies. We detect that most cryptocurrencies exhibit similar behaviour of information flow to global equities for each of the sample periods. The outcome provides pertinent signals to investors with diverse investment horizons who would want to diversify, hedge, or employ cryptocurrencies as a safe haven for global equities during uncertainties, specifically the COVID-19 pandemic.http://dx.doi.org/10.1155/2021/4753753 |
| spellingShingle | Emmanuel Asafo-Adjei Peterson Owusu Junior Anokye M. Adam Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic Complexity |
| title | Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic |
| title_full | Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic |
| title_fullStr | Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic |
| title_full_unstemmed | Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic |
| title_short | Information Flow between Global Equities and Cryptocurrencies: A VMD-Based Entropy Evaluating Shocks from COVID-19 Pandemic |
| title_sort | information flow between global equities and cryptocurrencies a vmd based entropy evaluating shocks from covid 19 pandemic |
| url | http://dx.doi.org/10.1155/2021/4753753 |
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