Interconnected Markets: Exploring the Dynamic Relationship Between BRICS Stock Markets and Cryptocurrency

TL;DR

This paper investigates the dynamic interactions between BRICS stock markets and cryptocurrencies using a TVP-VAR model, revealing key sources of shocks and the superiority of dynamic connectedness measures for understanding systemic risk.

Contribution

It introduces a time-varying parameter VAR approach to analyze interconnectedness between stock markets and cryptocurrencies in BRICS, highlighting the importance of dynamic measures over static ones.

Findings

Three BRICS stock markets are primary shock sources.

Dynamic connectedness explains more variance than static models.

Insights aid investors and regulators in risk management.

Abstract

This study aims to examine the intricate dynamics between BRICS traditional stock assets and the evolving landscape of cryptocurrencies. Using a time-varying parameter vector autoregression model (TVP-VAR), we have analyzed data from the BRICS stock market index, cryptocurrencies, and indicators from January 6, 2015, to June 29, 2023. The results show that three out of the five BRICS stock markets serve as primary sources of shocks that subsequently affect the financial network. The transcontinental (TCI) value derived from the dynamic conditional connectedness using the TVP-VAR model demonstrates a higher explanatory power than the static connectedness observed using the standard VAR model. The discoveries from this study offer valuable insights for corporations, investors, and regulators concerning systematic risk and investment strategies.