Dynamic linkages among cryptocurrencies, exchange rates and global equity markets

Eleftheria Kostika (Bank of Greece, Athens, Greece)
Nikiforos T. Laopodis (Department of Finance, Merrick School of Business, University of Baltimore, Baltimore, Maryland, USA)

Studies in Economics and Finance

ISSN: 1086-7376

Publication date: 24 August 2019



The purpose of this paper is to investigate the short- and long-run dynamic linkages between selected cryptocurrencies, several major world currencies and major equity indices. The results show that despite sharing some common characteristics, the cryptocurrencies do not reveal any short- and long-term stochastic trends with exchange rates and/or equity returns. The dynamics of each cryptocurrency with the Chinese Yuan appears to be more turbulent than that with the other exchange rates. Each cryptocurrency appears to follow its own trend in the global financial market and is independent of the exchange rates or the global stock markets, thus making them suitable for inclusion in global investment portfolios.


The cryptocurrencies examined are Bitcoin, Dash, Ethereum, Monero, Stellar and XRP. In addition, data were collected on major exchange rates with respect to the US dollar, namely, the euro, British pound, Japanese yen and Chinese Yuan. Finally, the following major stock market indices were selected: SP500, DAX, DJIA, CAC, FTSE, NIKKEI, Hang Seng and Shanghai. The study applied vector autoregressive (VAR) model and Engle’s (2002) dynamic conditional correlation generalized autoregressive conditional heteroskedasticity (DCC-GARCH) specification.


First, it was found that cryptocurrencies do not interact with each other because their correlations are weak and do not share a common long-run path; thus they are not cointegrated. Second, impulse response analysis from the VAR models indicate different reactions of each cryptocurrency to both exchange rate and equity shocks and that cryptocurrencies appear to be isolated from market-driven shocks. Third, the ups and downs in the cryptocurrencies’ dynamic conditional correlations (from the DCC-GARCH models) indicate that all cryptocurrencies were susceptible to speculative attacks and market events.

Research limitations/implications

This paper examines the dynamic linkages among the most important cryptocurrencies with major exchange rates and equity markets and, to the best of the authors’ knowledge, is the first paper to do so. Thus, interested market agents would gain valuable insights as to whether this new form of asset might be used for conducting monetary policies and portfolio construction on a global setting.


The paper contributes to the scant literature on the dynamic linkages among major cryptocurrencies and global financial assets. In general, given the differential relationships of each crypto with the equity markets, one could infer that they represent a decent short-run investment vehicle within a well-diversified, global asset portfolio (as they may increase the returns and reduce the overall risk of the portfolio).



The authors are indebted to three anonymous referees whose constructive comments improved the focus and flow of the paper. Their thanks also extend to the journal’s editor, H. Kinateder. This paper was finalized while N. Laopodis was an Adjunct Professor at the University of Baltimore, Baltimore, Maryland, USA. The usual disclaimer applies.


Kostika, E. and Laopodis, N.T. (2019), "Dynamic linkages among cryptocurrencies, exchange rates and global equity markets", Studies in Economics and Finance, Vol. 37 No. 2, pp. 243-265. https://doi.org/10.1108/SEF-01-2019-0032



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