Analysing spillovers between green cryptocurrencies and US equity sectors: measurements, spillover networks and driving factors

Abstract

This study examines the dynamic relationships between green cryptocurrencies and US equity sectors, particularly in light of the recent decline in the US equity sector performance, the surge in digital asset popularity, and the need for sustainable investment options. Using the TVP-VAR framework, we find that the Utilities and Energy sectors, along with XNO, are the largest recipients. In contrast, the Industrials, Materials, and Consumer Discretionary sectors are the largest senders of return spillover. These findings indicate that green cryptocurrencies are weakly connected with the US equity sectors and can offer diversification benefits for US equity sector portfolios. Overall, volatility and return spillovers are dynamic in nature, with stronger volatility connectedness than returns. Our findings show that VIX, DXY, and EPU (Clean, D10Y-2Y, OVX, GPR, FFR) increase (decrease) the systems’ connectedness, highlighting the influence of various macroeconomic factors on market connectedness. The portfolio analysis highlights the diversification and hedging role of green cryptocurrencies against stocks, which is beneficial for portfolio and equity risk managers. Our findings can inform the integration of green cryptocurrencies into sustainable finance frameworks and guide regulatory oversight of digital assets based on their risk transmission patterns, thereby developing sectoral guidelines under ESG-driven mandates, particularly in relation to energy transition goals.