The financial contagion effects of the global COVID-19 pandemic: Evidence from fintech and traditional financial markets

Abstract

In this , we investigate the contagion effect of the global Covid-19 pandemic in terms of the shift in mean spillover, volatility spillover, and time-varying 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 since the appearance of the Covid-19 pandemic. Especially, this contagion effect becomes more obvious in the high panic period, the high media hype period, and the negative market sentiment period. Additionally, we also provide evidence in support of the investor-induced contagion hypo during various turmoil context of the Covid-19 pandemic. We find that the source of the contagion effect between the stock market and the cryptocurrency market is the wealth effect. Furthermore, there is heterogeneity among the bitcoin and altcoin markets in how the global Covid-19 pandemic affected their respective relationship with the Asian emerging stock market. These findings are important for investors, risk managers, or policymakers making decisions during high uncertainty periods to understand when to act and how much.