Bitcoin Price risk,Macroeconomic Environment and Risk Contagion in China's Stock Market:An Analysis Based on Quantile Coherency Network
The cryptocurrency market represented by Bitcoin is becoming more and more mature,and it is of great significance to study the impact of Bitcoin price fluctuations on China's financial market.Whether and how Bitcoin price volatilities could propagate through the sectoral financial interconnectedness network and result in larger scale financial turmoil in China's stock market is investigated in this paper.Using the quantile coherency method,the financial interconnectedness is quantified and the general dependence structure between returns of 28 industries in China's stock market is evaluated.By constructing a spatial autoregressive framework based on the quantile coherency network,the overall impact of Bitcoin price shocks is further decomposed into direct effects and indirect effects propagating through the financial interconnectedness of industries.The main findings are as follows.Firstly,Bitcoin price volatility has a positive impact on the returns of industries,and it can propagate among different industries through financial interconnectedness.Secondly,the risk contagion effects under the steady state,prosperity and downturn of the market weaken in turn.Thirdly,the mid-term(weekly)Bitcoin risk contagion is stronger than the short-term(daily)risk contagion effect.Fourthly,in the steady state of the market,the risk contagion effect under the weekly frequency financial interconnectedness network is stronger.Finally,lower interest rates and price levels can significantly reduce the risk contagion effect of Bitcoin price shocks on the Chinese stock market.The contributions of this paper are as follows.Firstly,the general dependence structure of 28 industries'returns is constructed and the financial interconnectedness network is further depicted under different frequencies and market conditions.Secondly,spatial autoregressive framework is used to decompose risk shocks into direct effects and indirect effects,which helps to understand the role of financial interconnectedness in risk propagation and empirical evidence is provided for the formulation of policies and regulations to prevent Bitcoin-related risks.
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