Volatility and returns connectedness between cryptocurrency and China’s financial markets: A TVP-VAR extended joint connectedness approach

Abstract

We employ a time-varying parameter vector autoregression (TVP-VAR) joint connectedness approach to study the dynamic risk spillover effects between cryptocurrencies and China’s financial market, further exploring the impact of cryptocurrencies on China’s financial market. Our results show that there is asymmetric risk transmission between cryptocurrencies and China’s financial market, and the risk spillover effect is very weak. Specifically, the spillover of cryptocurrencies to China’s financial market is significantly stronger than the spillover of China’s financial market to cryptocurrencies. Cryptocurrencies have a stronger spillover effect to China’s exchange rate and gold. The net spillover effect of cryptocurrencies is weakening over time. Overall, the return spillover impact of cryptocurrencies on China’s financial market is greater than the volatility spillover impact, and the degree of impact of different cryptocurrencies is heterogeneous. The findings of this study have several implications for policymakers and investors.