Dynamic Interlinkages between Cryptocurrencies and Stock Markets: A Comparative Study of Developed and Developing Economies

Abstract

This study examines the dynamic interlinkage amongst top cryptocurrencies i.e. Bitcoin / Ethereum and major equity markets of three developed and three developing economies i.e. Russia, USA, China, India, Pak and Bangladesh. The data has been taken from 1 Jan 2018 to 31 Dec 2024. Research applies 12 bivariate Vector Autoregressive (VAR) models and the Diebold and Yilmaz (2009) connectedness framework to measure return transmission and volatility spillovers. The results reveal that dominant net transmitters of volatility remain Cryptocurrencies, exerting stronger spillover effects than traditional equity markets. USA, China and Russian stock markets show higher level of connectedness with cryptocurrencies. Indian market is a developing market showing more connectedness with cryptocurrencies and act as both transmitter and receiver of greater spillovers. Pakistan and Bangladesh Stock markets are generally seen as net receivers of shocks. Major geopolitical disruptions and pandemics like COVID-19 cause spillover intensities. In general, cryptocurrencies have emerged as strong financial assets having great potential of shaping the interlinked dynamic market thereby reducing broadening benefits and shaping up new challenges for the management of risk and oversight regulations. The study contributes to compare financial literature and proposes practical implications for policymakers, regulators and investors in both emerging and advanced economies. v