CRYPTOCURRENCIES AND G7 CAPITAL MARKETS INTEGRATE IN PERIODS OF EXTREME VOLATILITY?

Nicole Horta; Rui  Dias; Catarina Revez; Paulo Alexandre; Paula Heliodoro

doi:10.5937/jpmnt10-41491

Nicole Horta School of Business and Administration, Polytechnic Institute of Setúbal, Setúbal, Portugal https://orcid.org/0000-0003-0879-6691
Rui Dias School of Business and Administration, Polytechnic Institute of Setúbal, Setúbal, Portugal https://orcid.org/0000-0002-6138-3098
Catarina Revez School of Business and Administration, Polytechnic Institute of Setúbal, Setúbal, Portugal
Paulo Alexandre School of Business and Administration, Polytechnic Institute of Setúbal, Setúbal, Portugal https://orcid.org/0000-0002-7420-6517
Paula Heliodoro School of Business and Administration, Polytechnic Institute of Setúbal, Setúbal, Portugal https://orcid.org/0000-0002-7420-6517

DOI: https://doi.org/10.5937/jpmnt10-41491

Keywords: Covid-19, cryptocurrencies, G7 financial markets, financial integration, portfolio diversification

Abstract

The purpose of this study is to examine the synchronism between the US capital markets (DJ, S&P 500), the United Kingdom (FTSE 100), Canada (S&P/TSX), Germany (DAX 30), France (CAC 40), Japan (Nikkei 225), Italy (Italy Ds Market and major cryptocurrencies such as Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), and the Crypto 10 index, from February 2018 to November 2021. Based on the findings, we found that BTC and ETH cryptocurrencies drastically reduced their level of integration with their peers over the 2020 worldwide pandemic era, whereas LTC maintained. We also discovered that the Dow Jones, S&P 500, and DAX 30 stock indexes lowered their level of integration when compared to the pre-covid subperiod. For the UK capital market (FTSE 100), Canada (S&P/TSX), Japan (Nikkei 225), France (CAC 40), and Italy (Italy Ds Market) the level of integration increased significantly. These findings support, in part, our research question, that during periods of stress and uncertainty in the global economy capital markets tend towards integration, thus calling into question the hypothesis of efficient portfolio diversification.

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