Election-induced volatility and cross-asset spillovers: The impact of political uncertainty on cryptocurrencies, stocks, and oil

This study examines volatility spillovers among cryptocurrencies, stock indices, and crude oil during the U.S. presidential election cycle of 2024, characterized by the Democratic Vice President’s nomination and the subsequent re-election of the Republican candidate. Using daily data from July 20, 2024, to January 23, 2025, within a VAR framework, we analyze interdependencies through Granger causality tests, impulse response functions (IRFs), and variance decomposition. To capture the time-varying nature of volatility, we employ an eGARCH model, which reveals asymmetric responses to political events. Bitcoin (BTC-USD) exhibits heightened sensitivity to election-related uncertainty, remaining largely independent of traditional markets in the short term while significantly influencing the S&P500 (GSPC) over longer horizons, explaining 72.93% of the variance, suggesting increasing institutional integration. An event study methodology further quantifies abnormal returns around key political announcements, highlighting market reactions to evolving regulatory expectations. European indices (FTSE, GDAXI, FCHI) display strong interconnectedness, while crude oil futures (BZ=F) remain relatively insulated, aside from modest interactions with Bitcoin. The election outcomes introduced short-term uncertainty, amplifying volatility spillovers across asset classes. Finally, the study highlights the impact of political events on shaping global financial dynamics, offering insights into portfolio diversification and risk management strategies in an era of increasing cryptocurrency adoption.