Keywords: Volatility Spillovers, Crypto-assets, Financial Stability
How does uncertainty of crypto-assets affect traditional asset classes? Using a vector autoregression (VAR) methodology, we answer this question by analyzing volatility spillovers between five asset classes (crypto-assets, stocks, bonds, fiat- currencies, and commodities). Given the vast heterogeneity within each asset class, our VAR specification accounts for cross-sectional variation across and within each asset class. By transforming the VAR residuals into sectoral shocks, we are able to distinguish between volatility spillovers across, and volatility co-movements within asset classes. We find that on average volatility of crypto-assets accounts for 15% of the volatility contagion received by traditional asset classes. The directional spillovers from crypto-asset to bonds and to fiat-currencies are particularly strong, capturing the wealth channel and the remittance channel, respectively.