COVID-19 vaccine and post-pandemic recovery: Evidence from Bitcoin cross-asset implied volatility spillover

Michael Di; Ke Xu

doi:10.1016/j.frl.2022.103289

COVID-19 vaccine and post-pandemic recovery: Evidence from Bitcoin cross-asset implied volatility spillover

Financ Res Lett. 2022 Dec:50:103289. doi: 10.1016/j.frl.2022.103289. Epub 2022 Aug 29.

Authors

Michael Di¹, Ke Xu¹

Affiliation

¹ Department of Economics, University of Victoria, PO Box 1700 STN CSC, Victoria, BC V8N 2Y2 Canada.

Abstract

This paper examines implied volatility spillovers and connectedness between Bitcoin and a broad range of traditional financial assets (U.S. equity market, gold, crude oil, emerging markets and developing markets) from January 8, 2019 to January 20, 2022. Vector Auto-Regression and Generalized Forecast Error Variance Decomposition are used to compare results before COVID-19, during COVID-19 and after the vaccine becomes available. Results indicate higher connectedness during COVID-19 but very low connectedness after the vaccine is available, signaling recovery in financial markets. We also find that Bitcoin is a strong transmitter of volatility during COVID-19.

Keywords: Bitcoin; COVID-19 recovery; COVID-19 vaccine; Implied volatility spillover.