How return and volatility spillovers among cryptocurrencies are affected by the russia-ukraine war: A var-dcc-garch approach

Abstract

In recent years, cryptocurrencies have become an increasingly important asset class in the financial world due to their high returns potential but its associated with rapid volatility, which made them be speculative investment tools for traders and investors alike. Therefore, there are demands in studying cryptocurrency especially the revenue and fluctuation, especially during uncertainty times. This study investigates the spillover effects of returns and volatility among 5 major cryptocurrencies across a dataset spanning 2,557 daily observations from December 31, 2017, to December 31, 2024 by using the VAR-DCC-GARCH approach. Additionally, the authors divide the periods into 2 phases including before and during Russia-Ukraine conflicts to examine the differences. We also calculate the optimal weight and hedge ratio for all cryptocurrency pairs to provide guidance on how investors allocate their capital across different cryptocurrencies to achieve an efficient portfolio. Our results reveal that return spillovers are unidirectional from Ethereum, Litecoin, and Tether to Bitcoin, as well as from Tether to Ethereum and Litecoin to Ethereum. Besides, bidirectional spillovers occur between Bitcoin and Monero, and Ethereum and Monero. The volatility transmission is significantly positive between cryptocurrencies except Tether. This indicates that Tether is an effective hedge asset for Bitcoin and Ethereum. Furthermore, our findings show that return and volatility spillover are different between two periods. These findings contribute to valuable insights for investors optimizing their portfolio and governments better understanding the volatility spillover in cryptocurrencies market, particularly during periods of global uncertainty