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Non-linear relationship between oil and cryptocurrencies: Evidence from returns and shocks

2023; Elsevier BV; Volume: 89; Linguagem: Inglês

10.1016/j.irfa.2023.102769

1873-8079

Muhammad Abubakr Naeem, Sitara Karim, Afsheen Abrar, Larisa Yarovaya, Adil Ahmad Shah,

Energy, Environment, Economic Growth

The price instabilities between oil prices and cryptocurrencies have motivated the current study to examine the nonlinear relationship between oil returns/shocks and cryptocurrencies during March 3, 2018 to October 10, 2021. We employed a novel methodology of cross-quantilogram to unveil the nonlinearity and asymmetry between oil shocks and cryptocurrencies. We find that when markets are normal and bullish, there is a positive correlation between oil returns and cryptocurrency returns at first lag; however, there is a negative correlation between oil returns and cryptocurrencies in all market conditions. Moreover, rising fluctuations in oil demand shocks brings significant movement in cryptocurrency returns in bearish market conditions and it is unlikely that oil demand shocks and cryptocurrencies returns move in same directions. Given these results, we proposed useful implications for policymakers, strategists, regulators, financial market participants, and investors to hedge/diversify their risk.