Analyzing time–frequency connectedness between cryptocurrencies, stock indices, and benchmark crude oils during the COVID-19 pandemic

Abstract

Abstract We used daily return series for three pairs of datasets from the crude oil markets (WTI and Brent), stock indices (the Dow Jones Industrial Average and S&P 500), and benchmark cryptocurrencies (Bitcoin and Ethereum) to examine the connections between various data during the COVID-19 pandemic. We consider two characteristics: time and frequency. Based on Diebold and Yilmaz’s (Int J Forecast 28:57–66, 2012) technique, our findings indicate that comparable data have a substantially stronger correlation (regarding return) than volatility. Per Baruník and Křehlík’ (J Financ Econ 16:271–296, 2018) approach, interconnectedness among returns (volatilities) reduces (increases) as one moves from the short to the long term. A moving window analysis reveals a sudden increase in correlation, both in volatility and return, during the COVID-19 pandemic. In the context of wavelet coherence analysis, we observe a strong interconnection between data corresponding to the COVID-19 outbreak. The only exceptions are the behavior of Bitcoin and Ethereum. Specifically, Bitcoin combinations with other data exhibit a distinct behavior. The period precisely coincides with the COVID-19 pandemic. Evidently, volatility spillover has a long-lasting impact; policymakers should thus employ the appropriate tools to mitigate the severity of the relevant shocks (e.g., the COVID-19 pandemic) and simultaneously reduce its side effects.