Cyber-attacks, spillovers and contagion in the cryptocurrency markets

• Published in: Journal of international financial markets, institutions & money Vol. 74; p. 101298
• Main Authors: Caporale, Guglielmo Maria, Kang, Woo-Young, Spagnolo, Fabio, Spagnolo, Nicola
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2021
• Subjects: Contagion; Crypto currencies; Cyber-attacks; Mean and volatility spillovers; Cyber-attacks; Mean and volatility spillovers; Contagion; F30; C32; G15; Crypto currencies
• ISSN: 1042-4431; 1873-0612
• DOI: 10.1016/j.intfin.2021.101298

•Mean and volatility spillovers between three major cryptocurrencies (Bitcoin, Litecoin and Ethereum) and role of cyber-attacks.•Trivariate GARCH-BEKK models with dummies corresponding to different types, targets and number per day of cyber-attacks.•Significant dynamic linkages (interdependence) between the three cryptocurrencies with cyber-attacks.•Cyber-attacks affect the transmission mechanism between cryptocurrency returns and volatilities (contagion).•Cyber-attacks strengthen cross-market linkages, thereby reducing portfolio diversification opportunities for cryptocurrency investors. This paper examines mean and volatility spillovers between three major cryptocurrencies (Bitcoin, Litecoin and Ethereum) and the role played by cyber-attacks. Specifically, trivariate GARCH-BEKK models are estimated which include suitably defined dummies corresponding to different types, targets and number per day of cyber-attacks. Significant dynamic linkages (interdependence) between the three cryptocurrencies under investigation are found in most cases when cyber-attacks are taken into account, Bitcoin appearing to be the dominant cryptocurrency. Further, Wald tests for parameter shifts during episodes of turbulence resulting from cyber-attacks provide evidence that the latter affect the transmission mechanism between cryptocurrency returns and volatilities (contagion). More precisely, cyber-attacks appear to strengthen cross-market linkages, thereby reducing portfolio diversification opportunities for cryptocurrency investors. Finally, the conditional correlation analysis confirms the previous findings.