Market dynamics and price jumps in crypto and traditional financial assets amidst financial flux

Abstract

Abstract This study delves into the substantial fluctuations in returns of leading cryptocurrencies—Bitcoin (BTC), Ethereum (ETH), and Binance Coin (BNB)—alongside major global stock indices, including the NASDAQ Composite, S&P 500, and Euronext ENX. Utilizing the swap variance (SwV) analysis estimation approach, the research examines these entities based on their respective market capitalizations, assessing market jumps, integrated volatility, and realized volatility as key metrics for evaluating abnormal returns. The findings reveal that economic crises trigger an increased occurrence of market jumps in both cryptocurrency and stock markets, contributing to heightened volatility. This phenomenon underscores market inefficiencies and challenges the Efficient Market Hypothesis (EMH) framework. While positive jumps are more frequent, negative jumps are significantly larger in magnitude, supporting theories such as asymmetric volatility, the leverage effect, prospect theory, and loss aversion. Notably, the cryptocurrency market exhibits greater volatility compared to traditional stock markets, particularly during periods of heightened economic policy uncertainty. These insights hold profound implications for investors, portfolio managers, and policy‐makers, offering a nuanced understanding of the intricate dynamics within these financial ecosystems. By uncovering the interplay between market jumps, volatility, and economic uncertainty, the study provides valuable guidance for navigating the complexities of modern financial markets.