Cryptocurrency market spillover in times of uncertainty

Abstract

This study examines the liquidity spillovers in the cryptocurrency market during times of uncertainty. The empirical results show that liquidity spillovers are lower than both return and volatility spillovers, and liquidity spillovers increase noticeably during times of market shocks. Ethereum is the dominant transmitter of liquidity spillovers, followed by Bitcoin. We also find that heightened crude oil volatility, stock volatility, and economic policy uncertainty contribute to more significant liquidity spillovers within cryptocurrency markets. Moreover, increased volatility in exchange rates, crude oil, gold, and stock markets and economic policy uncertainty would enhance Ethereum’s role as a transmitter of liquidity shocks in the cryptocurrency market. These findings are relevant for investors and regulators to manage risks and uncertainties in the cryptocurrency market.