Impact of cryptocurrency volatility on stock market performance

Abstract

The purpose of this study is to investigate the impact of cryptocurrency price volatility on the stock market performance. Guided by the positivist philosophy, the study adopted an explanatory research design and a quantitative approach. The study used 5-year data of daily closing prices of Bitcoin, Ethereum and Cardano as well as stock market indices such as Ghana Stock Exchange-Composite Index, Nigeria Stock Exchange All-share Index, and Johannesburg Stock Exchange All-Share Index. Having employed Autoregressive Distributed Lag (ARDL) and Fixed Effect panel regression models, the study found that Cryptocurrency price volatility significantly affects stock market performance, with Bitcoin showing a positive effect at the country level but negative effects at the group level. Ethereum price volatility also recorded a significant positive impact on both group and country levels, while Cardano has a significant negative impact at both levels, except for Ghana, which reports insignificant effects in both short and long runs and South Africa which recorded insignificant impacts in the long run. It was concluded that both the cryptocurrency market and the conventional stock market are not only interconnected but also interdependent. The study, therefore, calls for clear and consistent regulatory frameworks for cryptocurrencies, advocates for investor awareness and financial literacy, recommends portfolio diversification to mitigate volatility and calls for strengthened market surveillance and the exploration of market stability mechanisms and enhanced cybersecurity measures to address risks associated with cryptocurrency markets.