Dynamic spillover effects and interconnectedness of DeFi assets, commodities, and Islamic stock markets during crises

Younis, Ijaz; Du, Anna Min; Gupta, Himani; Ullah Shah, Waheed

Abstract

Decentralized Finance (DeFi) assets, commodities, and Islamic stock market cointegration are affected by technological innovations, market dynamics, investor behavior, and crises. This study investigates the dynamics of returns and volatility for three DeFi assets, six commodities, and three Islamic stock markets from December 2019, to March, 2023, and identifies higher spillover effects during crises. Links among the Cross-DeFi, commodity, and Islamic markets significantly influence returns and volatility during crises. Notably, the commodities index emerged as a pivotal and substantial transmitter of risk during the Russian-Ukraine war crisis, with Emerging Markets (EM) being a key recipient. However, during the COVID-19 pandemic, livestock indices assume the role of prominent risk-return spillover receivers. The findings indicate robust returns and volatility interconnected between DeFi assets and Islamic markets with a moderate level of connectivity among commodity groups. WDI, ACWI, and EM explained 75 % of the variance observed during crisis episodes. This study formulates strategic portfolio management within and between connectedness among return volatilities by highlighting the stability of DeFi assets, the diversification potential in commodities, and a balanced option in Islamic markets. Our study provides a deep and insightful understanding of the stakeholders across markets during crises.

Citation

Younis, I., Du, A. M., Gupta, H., & Ullah Shah, W. (2024). Dynamic spillover effects and interconnectedness of DeFi assets, commodities, and Islamic stock markets during crises. International Review of Financial Analysis, 96(Part A), Article 103563. https://doi.org/10.1016/j.irfa.2024.103563

• Journal Article Type: Article
• Acceptance Date: Sep 15, 2024
• Online Publication Date: Sep 19, 2024
• Publication Date: 2024-11
• Deposit Date: Sep 20, 2024
• Publicly Available Date: Sep 20, 2024
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 96
• Issue: Part A
• Article Number: 103563
• DOI: https://doi.org/10.1016/j.irfa.2024.103563
• Keywords: DeFi assets, Commodities, Islamic stocks, COVID-19, Russia-Ukraine war, Risk-return connectedness, TVP-VAR