Bridging finance and the real economy: Dynamic volatility transmission between leading cryptocurrencies and Chinese firms

Abstract

This study investigates the dynamic volatility transmission between leading cryptocurrencies (Bitcoin, Ethereum, and Binance Coin) and major Chinese firms in the technology (Tencent and Alibaba), green energy (CATL, BYD, and LONGi), and traditional energy (PetroChina) sectors, including the CSI 300 index. Employing the frameworks of Diebold and Yilmaz (2012) and Baruník and Křehlík (2018) on daily data from July 2018 to May 2025, we demonstrate significant cross-market risk transmission. The total connectedness index averages 34.77%, soaring to over 50% during the COVID-19 crisis, underscoring heightened systemic vulnerability. Our key finding identifies the CSI 300 index and cryptocurrencies (BTC, ETH) as the primary net transmitters of volatility shocks, whereas Chinese tech and energy firms (Tencent, CATL, and PetroChina) act as the main net receivers. A critical insight from the frequency decomposition is the absolute dominance of short-term spillovers (1–4 days), which constitute 34.85% of total connectedness, vastly outweighing the minimal effects in the medium- (4–10 days: 0.78%) and long-term (beyond 10 days: 0.52%). Investor sentiment, speculation, and news shocks drive short-term volatility spillovers from cryptocurrencies to stocks, particularly evident in their strong correlation with Chinese tech and energy equities. We attribute these spillovers to shared investor bases, sectoral links like crypto mining's energy demand, and regulatory interdependencies. Our evidence confirms that cryptocurrency markets are now integral to global financial stress, transmitting significant volatility to real-economy sectors. This study offers critical insights for investors and policymakers managing risk in an increasingly interconnected financial landscape.