Foreign exchange, stock and bitcoin markets: A strategic re-visitation of the interrelationship and volatility dynamics of financial markets

Abstract

The financial market is a decentralized market made up of global network of businesses, forex, stock investment, and digital markets. The paper evaluated the patterns and interrelationships of volatilities in return amongst foreign exchange, stock, and bitcoin markets returns in oil importing nations. The Markov-Switching and quantile regression estimation methods were executed. Results indicate stock markets of Kenya and Uganda had the most frequent depreciating returns. Bitcoin returns were negatively and significantly influenced by changes in currency values, whereas change in bitcoin trading value causes a higher change in exchange rate returns. A percentage increase in stock market returns stimulates exchange rate returns to rise also but at a higher rate. Returns on exchange rates and Bitcoin markets are significant predictors of stock market returns. Exchange rate volatility dynamics occur in the opposite direction as those in stock markets and in the floor of Bitcoin market. Volatility was significantly observed when currency devalued confirming the erratic behaviors of investors to dwindling local currency values compared to the U.S. dollar. Financial markets authorities can use the research findings to support their choice to regulate the financial markets and shield investors from information asymmetry that could result from cross-market volatility interrelationships.