The interconnectedness of stock indices and cryptocurrencies during the Russia-Ukraine war

• DOI: 10.1016/j.jeconc.2023.100039
• Publication Date: 2023-11-04T17:41:45Z
• Authors: Nidhal Mgadmi; Tarek Sadraoui; Waleed Alkaabi; Ameni Abidi
• Keywords: Causality; Cryptocurrency; Social pathology. Social and public welfare. Criminology; 0502 economics and business; 05 social sciences; Stock indices; War; Ukraine; HV1-9960; Russia

abstracts: This article examines the causal relationship between stock indices and cryptocurrencies during the ongoing Russia-Ukraine war. The econometric investigation covers the period from February 24, 2022 to April 12, 2023, and focuses on seven stock market indices (S&P 500, DAX, CAC40, Nikkei, TSX, MOEX, PFTS) and seven cryptocurrencies (Bitcoin, Ethereum, Litecoin, Dash, Ripple, DigiByte, XEM). In this article, we investigate how investors react to fluctuations in financial assets and whether they seek safe havens in cryptocurrencies. We use dynamic causality in the Granger (1969) sense to detect a possible causal relationship in the short term, and seven models to estimate the long-term relationship between cryptocurrencies and financial assets. Our results show that in the short term, three famous cryptocurrencies (Bitcoin, Ethereum, Ripple) and two digital assets with minor popularity (XEM and DigiByte) are impacted by the German, Russian, and Ukrainian stock markets. In the long term, we find a positive and significant effect of the American, Canadian, French and Ukrainian stock market indices on Bitcoin. These findings suggest that the stability of traditional financial markets during the current war period can be explained on the one hand by investors' fears of an unstable business climate, and on the other hand, by speculators' interest in new electronic products that are perceived as hedging instruments and safe havens in times of crisis.