On the Connectedness Between Bitcoin, Gold, Gold-Backed Cryptocurrencies and the G7 Banking Sector Stock Indices During Crises: Evidence from Quantile Vector Autoregression and Temporal Frequency Connectivity approach

Abstract

This study investigates the dynamic connectedness among conventional cryptocurrencies (Bitcoin), gold-backed currencies (PAXG and DGX), gold, and G7 banking sector indices (USA, Germany, Canada, France, UK, Italy, and Japan). Employing Quantile Vector Autoregression and Temporal-Frequency Connectivity methodologies, our analysis reveals nuanced relationships among these market blocks. France and Germany’s banking indices exhibit the highest connectedness, emphasizing their central roles. Peaks in the Total Connectedness Index coincide with global events, underscoring the market’s sensitivity to external shocks. G7 banking sectors emerge as stable information transmitters, while Bitcoin, PAXG, DGX, and gold act as net receivers of shocks, reflecting their effectiveness as hedges during economic uncertainties. Our time-quantile space approach unveils a symmetrical pattern in dynamic connectivity, emphasizing robust interconnections between positively and negatively shifted assets. The time-frequency connectedness analysis highlights the market’s short-term sensitivity, emphasizing the need for adaptive risk management. Decomposing net directional connectivity into short and long-term dynamics provides valuable insights for investors and risk managers. Ultimately, our findings contribute to a deeper understanding of dynamic connectedness in the cryptocurrency market, offering insights for effective risk management and decisionmaking in this evolving financial landscape.