Undoubtedly, conducting further investigations to determine whether risk sharing between cryptocurrencies and stock markets has increased (decreased) during the COVID-19 period relative to the pre-COVID-19 era is essential. ![]() ![]() Understandably, the nature of risk-sharing and role of cryptocurrencies as a hedge or safe haven have not yet been settled. However, Goodell and Goutte (2020) stated that a strong negative co-movement exists between Bitcoin prices and COVID-19, suggesting that Bitcoin can be a potential hedger. (2020) documented that gold performs much better than Bitcoin in hedging Chinese financial market risk. In the context of the COVID-19 spread, Conlon and McGee (2020) noted that Bitcoin is not found to hedge against the extreme market fall of S&P 500 instead, it aggravates the downside risk of the portfolio. Existing studies seemingly show inconclusive evidence concerning the role of cryptocurrencies, that is, whether they can offer safe hedging opportunities or are merely diversifiers. Conversely, owing to the higher volatility level of Bitcoin, managing its risk is intrinsically challenging for investors ( Yermack, 2013), and thus, it may not be an ideal candidate to be considered as a safe haven asset ( Bouri et al., 2017, Shahzad et al., 2019). For instance, Bitcoin, being uncorrelated with other traditional assets ( Baur et al., 2018 Al-Yahyaee et al., 2019) and uninfluenced by the monetary policy environment ( Narayan et al., 2019), can decrease portfolio risk while offering hedging benefits during financial market turmoil ( Gil-Alana et al., 2020, Pal and Mitra, 2019 Al-Yahyaee et al., 2019). Given the notion that cryptocurrencies may offer hedging benefits against stock market fall ( Baur et al., 2018 Al-Yahyaee et al., 2019), until recently, these digital currencies have attracted the attention of many investors. The high economic uncertainties associated with the spread of the pandemic and its resultant shock in financial markets induce investors to search for alternative assets that can offer safe hedging opportunities. Recent studies that have examined the impact of the COVID-19 pandemic on financial markets include financial market contagion ( Akhtaruzzaman et al., 2020, Ashraf, 2020, Salisu and Vo, 2020, Topcu and Gulal, 2019, Azimli, 2019, Goodell and Goutte, 2020, Baker et al., 2020), portfolio diversification opportunities ( Corbet et al., 2020, Conlon and McGee, 2020, Akhtaruzzaman et al., 2020, Yoshino et al., 2020), and co-movements among cryptocurrencies ( Yarovaya et al., 2020), among others. ![]() The contagion, which has percolated to the credit markets, has also adversely affected firm solvency, especially for firms with higher corporate debts. Similarly, S&P 500 and Nasdaq have also suffered from steep falls of 9.5 % and 9.4 %, respectively. Other European markets, such as France and Germany, have also dipped by 12 % ( BBC, 2020). For example, the UK’s benchmark index plunged by 10 %, equivalent to £160.4 billion, thus witnessing the worst fall since the 1987 market crash. ![]() The excessive selling off has caused stock markets to plummet heavily. The impacts have further created panic among investors, leading them to start to “risk-off” their positions to minimize losses. For example, stock markets have fallen by 30 %, credit spreads of risky bonds have increased, and implied volatilities of stocks and oil have jumped to a new level ( OECD, 2020b). Thus, the anticipated loss in business has resulted in financial market turmoil and intensified economic uncertainty. To contain the spread of COVID-19 and losses of lives, most governments across the world have resorted to economy-wide lockdowns, resulting in the temporary shutdown of businesses and factories. Since early March 2020, the global spread of COVID-19 has led to a sharp decline in economic growth, and as per recent estimates, the annual GDP growth of major world economies could be negative during 2020 ( OECD, 2020a). The worldwide spread of COVID-19 has not only caused massive impairment to the socioeconomic status of the world population, but also wreaked havoc on the entire financial system across the globe.
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