The contagion effect of cryptocurrency markets

Abstract

The purpose of the article is to assess the interconnectedness of selected cryptocurrency markets and to identify the contagion effect of the markets. The study used the ADF test according to which the degree of integration of the studied processes was determined and the MNW estimation of the parameters of the error correction model was performed to assess the dependencies of short-term and long-term character. The results of the study indicate clearly that the cryptocurrency markets are interrelated in the short term, and only some of them are integrated and described by a model with an error correction mechanism, i.e., they are characterized by a long-term relationship, which refers to their common “wandering,” which can be treated as the effect of contagion of markets. In the case of other cryptocurrencies cointegration was not confirmed, which means that the analysis of mutual relations in these cases allows us to capture only short-term relationships, and we cannot talk about the contagion effect in this case. The results of the article can be an aid in choosing an investment strategy in cryptocurrencies adapted to its time horizon.