Non-linear relationship between oil and cryptocurrencies: Evidence from returns and shocks |
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| Institution: | 1. Accounting and Finance Department, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates;3. Department of Economics and Finance, Sunway Business School, Sunway University, Subang Jaya, Malaysia;4. National University of Modern Languages, Islamabad, Pakistan;5. Southampton Business School, University of Southampton, United Kingdom;6. India Gold Policy Centre, IIM-Ahmedabad, India;1. Turku School of Economics, University of Turku, Turku, Finland;2. College of Business, Doane University, USA;3. NTNU Business School, Norwegian University of Science and Technology, 7491 Trondheim, Norway;1. James Cook University, Queensland, Australia;2. Western Sydney University, NSW, Australia;3. Lebanese American University, Beirut, Lebanon;1. Dr Hassan Murad School of Management, University of Management and Technology, Pakistan;2. Department of Economics and Finance, Sunway Business School, Sunway University, Subang Jaya, Malaysia;3. Accounting and Finance Department, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates;4. School of Business, Faculty of Business and Law, University of Wollongong, Australia;5. Copenhagen School of Energy Infrastructure, Copenhagen Business School, Denmark;1. College of Business and Public Management, Wenzhou-Kean University, China;2. University of Northampton, Northampton, NN1 5PH, United Kingdom;3. College of Business, The University of Akron, USA |
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| 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. |
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