The directional spillover effects and time-frequency nexus between stock markets, cryptocurrency, and investor sentiment during the COVID-19 pandemic

Sol ani, Haye ; Taleb, Jamila; Abbes, Mouna Boujelbène
A icle
The di ec ional spillo e e ec s and ime- equency nexus
be ween s ock ma ke s, c yp ocu ency, and in es o
sen imen du ing he COVID-19 pandemic
Eu opean Jou nal o Managemen and Business Economics (EJM&BE)
P o ided in Coope a ion wi h:
Eu opean Academy o Managemen and Business Economics (AEDEM), Vigo (Pon e ed a)
Sugges ed Ci a ion: Sol ani, Haye ; Taleb, Jamila; Abbes, Mouna Boujelbène (2025) : The di ec ional
spillo e e ec s and ime- equency nexus be ween s ock ma ke s, c yp ocu ency, and in es o
sen imen du ing he COVID-19 pandemic, Eu opean Jou nal o Managemen and Business
Economics (EJM&BE), ISSN 2444-8451, Eme ald, Leeds, Vol. 34, Iss. 1, pp. 23-46,
h ps://doi.o g/10.1108/EJMBE-09-2022-0305
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The di ec ional spillo e e ec s
and ime- equency nexus be ween
s ock ma ke s, c yp ocu ency,
and in es o sen imen du ing
he COVID-19 pandemic
Haye Sol ani, Jamila Taleb and Mouna Boujelb
ene Abbes
Facul y o Economics and Managemen o S ax, Uni e si y o S ax,
S ax, Tunisia
Abs ac
Pu pose –This pape aims o analyze he connec edness be ween Gul Coope a ion Council (GCC) s ock
ma ke index and c yp ocu encies. I in es iga es he ele an impac o Ra enPack COVID sen imen on he
dynamic o s ock ma ke indices and con en ional c yp ocu encies as well as hei Islamic coun e pa s
du ing he onse o he COVID-19 c isis.
Design/me hodology/app oach –The au ho s ely on he me hodology o Diebold and Yilmaz (2012, 2014)
o cons uc ne wo k-associa ed measu es. Then, he wa ele cohe ence model was applied o explo e
co-mo emen s be ween GCC s ock ma ke s, c yp ocu encies and Ra enPack COVID sen imen . As a
obus ness check, he au ho s used he ime- equency connec edness de elopedby Ba unik and K ehlik (2018)
o e i y he di ec ion and scale connec edness among hese ma ke s.
Findings –The esul s illus a e he e ec o COVID-19 on all c yp ocu ency ma ke s. The ime a ia ions o
s ock e u ns display s ylized ac ails and ola ili y clus e ing o all e u n se ies. This s ess ul pe iod
inc eased in es o pessimism and ea s and gene a ed nega i e emo ions. The indings also highligh a high
spillo e o shocks be ween Ra enPack COVID sen imen , Islamic and con en ional s ock e u n indices and
c yp ocu encies. In addi ion, we ind ha Ra enPack COVID sen imen is he main ne ansmi e o shocks
o all con en ional ma ke indices and ha mos Islamic indices and c yp ocu encies a e ne ecei e s.
P ac ical implica ions –This s udy p o ides wo main ypes o implica ions: On he one hand, i helps und
manage s adjus he isk exposu e o hei po olioby including s ocks ha signi ican ly espond o COVID-19
sen imen and hose ha do no . On he o he hand, he ola ili y mechanism and in es o sen imen can be
in e es ing o in es o s as i allows hem o conside he dynamics o each ma ke and hus op imize he asse
po olio alloca ion.
O iginali y/ alue –This inding sugges s ha he Ra enPack COVID sen imen is a ne ansmi e o
shocks. I is conside ed a p ominen channel o shock spillo e s du ing he heal h c isis, which con i ms he
beha io al con agion. This s udy also iden i ies he con ibu ion o pa icula in e es o und manage s and
in es o s. In ac , i helps hem design hei po olio s a egy acco dingly.
Keywo ds C yp ocu encies, Ra enPack COVID sen imen , COVID-19 pandemic,
Diebold–Yilmaz spillo e index, Wa ele cohe ence
Pape ype Resea ch pape
Di ec ional
spillo e
e ec s du ing
COVID-19
23
© Haye Sol ani, Jamila Taleb and Mouna Boujelb
ene Abbes. Published in Eu opean Jou nal o
Managemen and Business Economics. Published by Eme ald Publishing Limi ed. This a icle is
published unde he C ea i e Commons A ibu ion (CC BY 4.0) licence. Anyone may ep oduce,
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no con lic o in e es .
The cu en issue and ull ex a chi e o his jou nal is a ailable on Eme ald Insigh a :
h ps://www.eme ald.com/insigh /2444-8494.h m
Recei ed 25 Sep embe 2022
Re ised 15 Janua y 2023
16 Feb ua y 2023
28 Feb ua y 2023
Accep ed 3 Ma ch 2023
Eu opean Jou nal o Managemen
and Business Economics
Vol. 34 No. 1, 2025
pp. 23-46
Eme ald Publishing Limi ed
e-ISSN: 2444-8494
p-ISSN: 2444-8451
DOI 10.1108/EJMBE-09-2022-0305
1. In oduc ion
The COVID-19 pandemic is no only a heal h c isis. I also poses a g owing h ea o he
agile Chinese and global inancial ma ke s, which ha e aced emendous unce ain ies
du ing his pe iod. I di e s om o he c ises in i s b oad impac and dis ibu ional
consequences. Indeed, i is hi ing al eady s agnan and agile economies in he Middle Eas
and No h A ica (MENA) wi h lockdowns, dis up ed supply chains, d ama ic declines in
ou ism e enues and labo emi ances and empo a ily low oil p ices (Alaoui Mdagh i e al.,
2021;Bani-Khala and Taspina , 2022;Mehdi e al., 2022).
Indeed, o e he pas wo decades, shocks and c ises ansmi ed o inancial ma ke s ha e
led o s uc u al changes in he ola ili y o c yp ocu encies. This has p omp ed in es o s o
examine he in e connec i i y, isk ans e and hedging s a egies be ween he inancial
ma ke s and c yp ocu encies. In ac , c yp ocu encies ha e ecei ed subs an ial a en ion
om he public, in gene al, and in es o s and esea che s, in pa icula . Speci ically, he
launch o c yp ocu encies in he MENA egion is expec ed o ha e a signi ican impac on
he economic and inancial sys em o he egion. Thus, he low cos and secu i y o i ual
ansac ions highligh he impo ance o his elec onic paymen me hod and i s signi ican
ole in he inancial sys em o he MENA egion (Sayed and Abbas, 2018). The e o e,
unde s anding he impac o he c yp ocu ency ma ke as one o he de e minan s o Gul
Coope a ion Council (GCC) s ock ma ke e u ns is c ucial.
Fo ins ance, se e al ecen esea ch s udies ocused on he impac o COVID–19 on
inancial ma ke s in gene al and inancial asse s, such as c yp ocu encies and gold, in
pa icula (Co be e al., 2020;Zhang e al., 2020). In ac , Zhang e al. (2020) conclude ha he
ins abili y and economic damage caused by he pandemic made he inancial ma ke highly
unp edic able and ola ile. In addi ion, Al-Awadhi e al. (2020) s a e ha he daily g ow h o
o al cases and dea hs nega i ely co ela es wi h he s ock ma ke pe o mance. In ac ,
in es o s’expec a ions o isk and e u n ha e changed, leading hem o ealloca e hei
po olios. Al hough some s udies ha e examined he ela ionship be ween c yp ocu encies
and inancial ma ke s, many ha e been limi ed many o a single coun y (Al-Awadhi e al.,
2020;Na ayan e al., 2020) o ha e used i an in e na ional sample wi hou conside ing he
issue o connec i i y (Bou i e al., 2021). The gap in exis ing esea ch mo i a ed us o
in es iga e he shock ansmission be ween Ra enPack COVID sen imen , GCC inancial
s ock ma ke and c yp ocu encies du ing he COVID-19 pandemic.
To he bes o ou knowledge, his s udy is he i s o conduc a o mal and obus
empi ical in es iga ion o he impac o COVID-19 on he ola ili y in e connec ion be ween
he Ra enPack COVID sen imen , he GCC inancial ma ke , and, pa icula ly, he Islamic and
con en ional c yp ocu encies. To achie e his goal, we examine spillo e e ec s be ween
hese a iables using he VAR-based spillo e index app oach om he gene alized VAR
amewo k in oduced by Diebold and Yilmaz (2012). This me hod iden i ies he di ec ional
connec edness pe spec i e. I also measu es he le els o his connec edness, i.e. o al
connec edness, o al di ec ional connec edness, and pai wise di ec ional connec edness om
one a iable o ano he . Addi ionally, we apply wa ele cohe ence o examine he
co-mo emen s be ween hese a iables in a join ime- equency domain. This echnique
was p oposed o imp o e he accu acy o inancial ime se ies o ecas ing, which can p o ide
a ma ix o accommoda e he co ela ion a each ime and equency poin . This ad an age
allows us o obse e he change in consis ency be ween GCC s ock ma ke e u ns,
c yp ocu ency e u ns and Ra enPack COVID sen imen .
The pape is he e o e o ganized as ollows: Sec ion 2 e iews ecen esea ch ele an o
ou s udy. Sec ion 3 desc ibes he applied me hodology in de ail. Sec ion 4 in oduces he da a
and ou p elimina y analyses. In sec ion 5, we e eal and discuss he main empi ical esul s
achie ed in his esea ch. Finally, he las sec ion concludes he pape .
EJMBE
34,1
24
2. Li e a u e e iew
The COVID-19 pandemic has been one o he mos economically cos ly pandemics in ecen
his o y. In ac , Ash a (2021) shows ha he decline in s ock e u ns as a esponse o he
inc easing numbe o con i med cases is g ea e in coun ies whose in es o s ha e highe
domes ic unce ain y a e sion. Fo hei pa , Liu e al. (2021) indica e ha COVID-19
inc eases he isk o s ock ma ke c ashes in China. Mo e p ecisely, inancial ma ke s
con inue o expe ience a downwa d end wo ldwide due o in es o s’lack o in e es in
iskie asse s and ha e los nea ly $3 illion since he s a o he pandemic (Fo bes, 2020). In
ac , he COVID-19 c isis di e s om o he c ises because o i s b oad impac s and
dis ibu ional consequences. I is clea ha he MENA egion will no be he same a e his
pandemic. Indeed, he economic impac s a e el he mos : inancial ma ke s collapse, ou is s
e apo a e due o ligh bans and closu es, and oil p ices d op. Wi h he UAE canceling i s
Expo 2020 and Saudi A abia banning he annual hajj pilg image, bo h s a es ha e los
hund eds o millions o dolla s. In ac , he UAE was expec ed o a ac 25mn isi o s o i s
Expo 2020 in Oc obe 2020, and Saudi A abia used o ecei e 20mn eligious pilg ims each
yea (Ng, 2020). Meanwhile, Egyp is losing abou $1bn pe mon h in los ou is e enue
(Bianco and Wildangel, 2020). Indeed, he pandemic has dep essed he oil p ice as demand
d ies up. Like global ma ke s, GCC ma ke s ha e also been ending downwa d by an
a e age o 20% since he epo ing o he i s case o COVID-19 in he UAE. In es o s
con inue o lose daily due o he declining ma ke end. In Ma ch 2020, in es o s in Dubai,
Abu Dhabi, Saudi A abia, Kuwai and Qa a los nea ly $6bn, $8.3bn, $41bn, $2.8bn and
$11.9bn, espec i ely, in a single day (Khaleej Times, 2020).One o he mos a ec ed sec o s in
he UAE is eal es a e, wi h Chinese businessmen being he main in es o s in eal es a e
p ojec s in Dubai (Ng, 2020). As China eco e s om he e ec s o he pandemic, many
Chinese in es o s emain eluc an o make new ansac ions. E en be o e he epidemic, he
UAE aced an economic ca as ophe due o he Dubai bubble (Solomon, 2020).In addi ion,
Qa a ’s s ock ma ke s a e also su e ing om he impac o COVID-19, including he oil and
gas, inancial se ices, eal es a e and elecommunica ion s ock ma ke s, which ha e
collapsed despi e a 10bn Rial s imulus package o he s ock ma ke (KPMG, 2020).
The pandemic dis up ed businesses and caused unp eceden ed luc ua ions in commodi y
p ices, esul ing in a 21 and 6.15% decline in he s ock ma ke s o Bah ain and Kuwai ,
espec i ely (KPMG, 2020). The The Wo ld Bank Economic Upda e (2020) indica es ha
Oman’s economy will also emain unde s ess as he oil and gas, banking, ou ism and
logis ics sec o s a e in a de ici . Likewise, Mensi e al. (2020) examine he impac s o COVID-19
on he mul i ac ali y o gold and oil p ices unde upwa d and downwa d ends. They show
s ong e idence o asymme ic mul i ac ali y ha inc eases wi h a ising ac ali y scale.
Mo eo e , mul i ac ali y is pa icula ly highe in he down end (up end) o B en oil
(gold). This excess asymme y inc eased du ing he COVID-19 ou b eak. Akh a uzzaman
e al. (2021) also examine he way inancial con agion occu s ac oss inancial and non-
inancial i ms be ween China and G7 coun ies du ing COVID-19. Thei empi ical esul s
show ha inancial and non- inancial lis ed i ms in hese coun ies expe ience a signi ican
inc ease in condi ional co ela ions be ween hei s ock e u ns. Howe e , he e is li le
indus y-le el esea ch on he e ec o COVID-19 on c yp ocu ency p ices in he exis ing
li e a u e. The e a e also se e al indus y limi a ions a he economic le el o COVID-19
(Yang e al., 2016;Bou i e al., 2019;Gomes and Guba e a, 2021).
These s udies on he in e dependence o o eign exchange and c yp ocu ency ma ke s
a e a ac ing conside able esea ch in e es om a con agion pe spec i e. Speci ically, he
COVID-19 c isis has nega i ely in luenced he po en ial ole o c yp ocu encies as
di e si ied in es men s (Tiwa i e al., 2019;Gil-Alana e al., 2020).The e o e, s udying he
dynamics o ia cu encies and c yp ocu encies h ough he COVID-19 bea ma ke and i s
ini ial eco e y can be bene icial. I o e s a unique oppo uni y o examine he economic
Di ec ional
spillo e
e ec s du ing
COVID-19
25
impac o his pandemic on he inancial sys em and i s s abili y as a whole. In ac , join
dynamics o con en ional cu encies,suchasEUR,GBPandRMB,andmajo
c yp ocu encies ha e been explo ed ecen ly (e.g. K is janpolle and Bou i,
2019).The e o e, analyzing he beha io o c yp ocu encies ela i e o majo ia
cu encies is ecommended. In ac , i helps o assess he po en ial abili y o
c yp ocu encies o se e as a hedging medium o ia cu encies in imes o global c isis,
such as he COVID-19 pandemic u moil.
Recen ly, Fakh ekh and Je ibi (2020) ha e ocused on modeling he ola ili y dynamics o
c yp ocu encies. Howe e , ew s udies ha e in es iga ed ola ili y ansmission be ween
Bi coin and o he c yp ocu encies (Ka siampa e al., 2019;Beneki e al., 2019). Indeed, Agos o
and Ca e a a (2020) s udy he ela ionship be ween he explosi e beha io s o
c yp ocu encies using a uni oo es app oach. They p o e a s ong in e dependence in
he c yp ocu ency ma ke (as Co be e al., 2018 and Yi e al., 2018).In his con ex , Aslanidis
e al. (2019) examine he condi ional co ela ions be ween ou c yp ocu encies (Bi coin,
Mone o, Dash and Ripple), he S&P 500, bonds and gold. They show ha he s udied
c yp ocu encies a e highly co ela ed. Howe e , he associa ion be ween c yp ocu encies
and con en ional inancial asse s is negligible.
Using a copula-ADCC-EGARCH model, Tiwa i e al. (2019) in es iga e he ime- a ying
co ela ions be ween six c yp ocu encies and he S&P 500 index ma ke s. They s a e ha
he o e all ime- a ying co ela ions a e e y low, which indica es ha c yp ocu encies
se e as a hedging asse agains he isk o he S&P 500 s ock ma ke . They also show ha
ola ili ies espond mo e o a nega i e han a posi i e shock in bo h ma ke s. In addi ion, hey
iden i y Li ecoin as he mos e ec i e hedging asse agains S&P 500 isk. As a esul , hey
conclude ha c yp ocu ency migh be one o he mos impo an elemen s in po olio
di e si ica ion. Fu he mo e, Cha eddine e al. (2020) s udy he dynamic ela ionship
be ween Bi coin and E he eum and majo commodi ies and inancial s ocks. They con i m
ha hese wo c yp ocu encies can be ideal o inancial di e si ica ion. Mo e in e es ingly,
Bane jee e al. (2022) ind ha COVID-19 news sen imen in luences c yp ocu ency e u ns.
In ac , unlike p e ious esul s, he link is unidi ec ional be ween news sen imen and
c yp ocu ency e u ns. Indeed, Ozdama e al. (2022) a es ha e ail (ins i u ional) in es o
a en ion has a nega i e (posi i e) e ec on c yp ocu ency e u ns. Mo eo e , e ail
(ins i u ional) in es o a en ion agg a a es (cons ains) idiosync a ic isk while bo h ypes
o a en ion boos c yp ocu ency ma ke liquidi y.
Unlike adi ional c yp ocu encies, Islamic c yp ocu encies a e suppo ed by
quan i iable inancial undamen als ha main ain hei alue. They a e new echnical
applica ions ha le e age exis ing blockchains o mee he eligious equi emen s o some
in es o s. The mos common c yp ocu encies ha comply wi h Islamic laws a e X8X,
HelloGold and OneG am (Lahmi i and Beki os, 2019). These a e based on gold, which is one o
six “Rabawi”commodi ies app o ed by Muslim in es o s. Fo hose seeking o sa is y
eligious needs, in es ing in hese eme ging inno a ions is an in iguing p oposi ion.
Ne e heless, he e is li le in es iga ion in o he dynamics o Islamic and con en ional
c yp ocu encies du ing he heal h c isis (Mni e al., 2020). To ill his gap in he exis ing
li e a u e, his s udy aims o examine he ele an impac o Ra enPack COVID sen imen on
he dynamics o s ock ma ke indices and con en ional c yp ocu encies as well as hei
Islamic coun e pa s du ing he onse o he COVID-19 c isis.
3. Me hodological app oach
This s udy aims o examine he impac o Ra enPack COVID sen imen on he dynamics o
con en ional and Islamic s ock indices, as well as c yp ocu encies, du ing he onse o he
COVID-19 c isis. I analyzes he co ela ion be ween hese a iables o e he heal h c isis
EJMBE
34,1
26

pe iod. Fo ou modeling objec i e, we use a wo-s ep me hodology: Fi s , in o de o analyze
he spillo e e ec be ween in es o sen imen p oxies and s ock ma ke e u n, we s a wi h
he me hodology p oposed by Diebold and Yilmaz (2012). Mo e p ecisely, we apply Diebold
and Yilmaz’s connec edness index o quan i y he s a ic and dynamic connec edness o
in es o sen imen and inancial ma ke s du ing he COVID-19 c isis. Second, we use he
wa ele cohe ence model o explo e he co-mo emen s be ween hese a iables o di e en
ime equencies.
3.1 The di ec ional spillo e model
In his esea ch, we explo e he co-mo emen be ween he Ra enPack COVID sen imen and
con en ional and Islamic s ock indices, as well as c yp ocu encies, using he spillo e index
app oach de eloped by Diebold and Yilmaz (2012). In ac , o al, di ec ional and ne spillo e s
can all be iden i ied using his app oach. Indeed, he DY model is based on he ec o
au o eg essi e VAR model (Pesa an and Shin, 1998), which is desc ibed as ollows:
y ¼XP
i¼1
π
iy −iþ
ε
;(1)
whe e
ε
∼i:id ∼ð0;PÞ;
π
icon ains N3Nma ix o eg ession pa ame e s,
ε
is he ec o
o iden ically and independen ly dis ibu ed e o s wi h Pbeing hei a iance-co a iance
ma ix.
The VAR (p) model can he e o e be w i en as ollows:
y ¼X∞
i¼0θi
ε
−i(2)
θi¼
π
1θi−1þ
π
2θi−2þ...þ
π
pθi−p(3)
whe e θiis he N 3Nma ix o mo ing a e age coe icien s and θ0p o ides an N 3Niden i y
ma ix and θi¼0∀i<0.
Acco ding o Pesa an and Shin (1998), heH-s ep-ahead o ecas -e o a iance
decomposi ion is exp essed as ollows:
dg
ijðHÞ¼
−1
jj PH−1
h¼0e0
i
π
hPej2
PH−1
h¼0e0
i
π
0
hPei2(4)
The squa e oo o he diagonal elemen s o he a iance-co a iance ma ix is ep esen ed by
jj. In he VAR model, he shocks o each a iable a e no o hogonal, i.e. hey a e di e en
om one o he sums o own and c oss- a iance o he a iables in each ow o he a iance
decomposi ion ma ix. As a esul , he elemen s o he decomposi ion ma ix a e no malized:
d
g
ijðHÞ¼ dg
jjðHÞ
PN
j¼1dg
ijðHÞ(5)
wi h, PN
j¼1e
dg
ijðHÞ¼1 and PN
i;j¼1e
dg
ijðHÞ¼N.
In ac , he no malized elemen s o he decomposi ion ma ix in equa ion (6) can be used o
gene a e a o al spillo e (TS). Fu he mo e, we can calcula e he di ec ional and ne spillo e
(NS) as ollows:
TSgðHÞ¼
Pi;j¼1
i≠je
dg
ijðHÞ
PN
i;j¼1e
dg
ijðHÞ
3100 ¼
Pi;j¼1
i≠je
dg
ijðHÞ
N3100 (6)
Di ec ional
spillo e
e ec s du ing
COVID-19
27
Wi h :DS g
i←jðHÞ¼PN
j¼1;i≠je
dg
jiðHÞ
N3100 (7)
DS g
i←jðHÞ¼PN
j¼1;i≠je
dg
jiðHÞ
N3100 (8)
NS g
iðHÞ¼DS g
i←jðHÞDS g
i←jðHÞ(9)
Then, he a e age con ibu ion o he shock spillo e s ac oss he a iables o he o al
o ecas e o a iance is measu ed by he TS index. In ac , he DS in equa ion (7) es ima es
he spillo e e ec s om all o he ma ke s j o ma ke i o i#j. Howe e , he DS in equa ion
(8) measu es he spillo e e ec s om ma ke i o all o he ma ke s j.
Mo eo e , we should no e ha equa ions (7) and (8) a e used o calcula e NS o iden i y he
a iables as sende s o ecei e s o ne shocks. The e o e, when NS is nega i e, ma ke iis a
ne ecei e o spillo e e ec s. Howe e , a posi i e alue o NS indica es ha spillo e e ec s
o igina e om ma ke i o all o he ma ke s (ne ansmi e ).
3.2 The wa ele cohe ence model
The con inuous wa ele decomposi ion model is used o iden i y he mul i-ho izon na u e o
he co-mo emen be ween Ra enPack COVID sen imen , con en ional and Islamic index
e u ns and c yp ocu encies. I allows us o illus a e he e olu ion o local co ela ions o e
ime and equency. Thus, a ed a ea a he op (bo om) o he g aph deno es a s ong
co ela ion a high (low) equency, while a ed a ea on he le ( igh ) implies a s ong
co ela ion a he beginning (end) o he sample pe iod. Fo wo- ime se ies xð Þand yð Þ, he
wa ele -squa ed cohe ence, simila o Fou ie ’s analysis, is de ined as he absolu e squa ed
alue o he smoo hed c oss-wa ele spec um, which is no malized by he powe spec um o
he smoo hed wa ele s:
R2ð
τ
;sÞ¼ 
Sðs−1Wx;yð
τ
;sÞÞ
2
jSðs−1Wyð
τ
;sÞÞjjSðs−1Wyð
τ
;sÞÞj (10)
whe e: Sdeno es a smoo hing ope a o in ime and scale. Since he heo e ical dis ibu ions o
wa ele cohe ence a e unknown, he 5% s a is ical signi icance le el is de e mined using
Mon e Ca lo Simula ion. We can use he wa ele -squa ed cohe ence o measu e he
adi ional co ela ion o wo- ime se ies in ime and scale. As a esul , he wa ele squa ed
cohe ence coe icien R2ð
τ
;s) is be ween 0 and 1, wi h a high (low) dependence alue
ep esen ing a s ong (weak) co-mo emen . By obse ing he wa ele squa ed cohe ence
g aph, we can de ec egions in ime- equency space whe e he wo- ime se ies mo e
oge he and pa icula ly cap u e bo h ime- and equency- a ying co-mo emen ea u es
(G ins ed e al., 2004;Rua and Nunes, 2009;Dewanda u e al., 2014).
4. Da a and p elimina y analysis
4.1 Da a
In his s udy, we use daily and mon hly p ice da a om he GCC s ock ma ke indices, he
Ra enPack COVID sen imen , and he six majo c yp ocu encies: Bi coin (BTC), E he eum
(ETH), and Ripple (XRP) and hei Islamic coun e pa s X8X Token (X8X), Halalchain (HLC),
and HelloGold (HGT). Closing p ices we e ob ained om Da as eam and CoinMa ke Cap [1].
We choose hese c yp ocu encies based on hei ma ke capi aliza ion and a ailabili y. The
con en ional c yp ocu encies, Bi coin, E he eum, and Ripple (XRP), ha e he la ges ma ke
capi aliza ion. On he o he hand, Halalchain, HelloGold, and X8X ha e been ce i iedas
EJMBE
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Islamic complian . The s udy pe iod is om Janua y 1, 2018, o Decembe 21, 2022. We
conside wo sub-pe iods: he p e-c isis pe iod (Janua y 1, 2018, o No embe 30, 2019) and he
COVID-19 pe iod (Decembe 2, 2019, o Decembe 21, 2022). The daily e u n is calcula ed as
ollows:
RET ¼lnP lnP −1(11)
whe e: P and P −1deno e he closing p ice o he GCC s ock index o c yp ocu encies a ime
and –1, espec i ely. Following Fo bes and Rigobon (2002) and Akh a uzzaman and
Shamsuddin (2016), closing p ices a e eco ded in local cu encies. Fu he mo e, Mink (2015)
a gues ha i would be mo e app op ia e o use e u ns denomina ed in local cu ency han
hose in a common cu ency (e.g. e u ns denomina ed in US dolla s). This is because only
e u ns denomina ed in local cu ency accu a ely e lec p ice luc ua ions in na ional s ock
ma ke s. Howe e , e u ns con e ed in o a common cu ency e lec exchange a e
luc ua ions.
The e o e, Ra enPack COVID sen imen is a new indica o o measu e he GCC in es o
sen imen om Decembe 2, 2019, o Decembe 21, 2022. We ob ain da a o Ra enPack
COVID sen imen om he Ra enPack da abase [2].
4.2 P elimina y analysis
Table 1 p esen s he desc ip i e s a is ics o con en ional and Islamic e u ns o he six
inancial ma ke s (Panel A and Panel B, espec i ely) and he six c yp ocu encies (Panel C).
In ac , o all pe iods s udied, a close look a his able shows a posi i e a e age o mos
con en ional and Islamic s ock e u ns, excep Bah ain and Oman. All con en ional and
Islamic mon hly e u n se ies show excess ku osis. Mo eo e , o bo h skewness and
ku osis measu es, he esul s o he Ja que–Be a no mali y es ejec he null hypo hesis o
no mal dis ibu ion. Howe e , du ing he COVID-19 shock pe iod, Ra enPack’s COVID
sen imen showed nega i e a e age e u ns. We also no ice ha he con en ional
c yp ocu ency (Bi coin) has he lowes isk. Howe e , Islamic c yp ocu encies
(Halachain, HelloGold and X8X_Token) egis e he highes isk wi h s anda d de ia ions
o 0.247641, 0.277908, and 0.245447, espec i ely. Acco ding o he skewness and ku osis
indica o s, as well as he Ja que–Be a es , all se ies signi ican ly de ia e om he no mal
dis ibu ion.
Figu es 1 and 2 illus a e he e olu ion o he GCC s ock ma ke and c yp ocu ency
e u ns om Janua y 1, 2018, o Decembe 21, 2022. A e ex eme ola ili y s a ing in
Decembe 2019, he GCC s ock ma ke index declined signi ican ly. Indeed, since he global
sp ead o COVID-19, panic has p e ailed in he inancial ma ke s. As a esul , se e al ma ke s
a ound he wo ld con inued o all. Mo eo e , acco ding o Figu e 2, c yp ocu ency e u ns
show high luc ua ions. In ac , he impac o COVID-19 is obse ed in all c yp ocu ency
ma ke s. The ime a ia ions in s ock e u ns display s ylized ac ails and ola ili y
clus e ing o all e u n se ies. This s ess ul pe iod inc eased in es o pessimism and ea s
and gene a ed nega i e emo ions. As a esul , i d o e in es o s o sell hei sha es and exi
he s ock ma ke . In e es ingly, his beha io u he ampli ied he de e io a ion o he GCC
inancial ma ke .
5. Empi ical esul s and discussion
5.1 The spillo e s uc u e be ween he Ra enPack COVID sen imen and inancial ma ke
index e u ns
In his sec ion, we e e o he spillo e index app oach de eloped by Diebold and Yilmaz
(2012) o explo e he co-mo emen be ween he Ra enPack COVID sen imen and
Di ec ional
spillo e
e ec s du ing
COVID-19
29
Full sample: F om Janua y 1, 2018 o Decembe 21, 2022
Bah ain Kuwai Oman Qa a Saudi A abia UAE
Panel A: Con en ional index e u ns
Mean 0.000394 0.000361 7.59E-06 0.000162 0.000370 0.000592
Max 0.034233 0.061446 0.027620 0.048530 0.068315 0.080762
Min 0.060006 0.293565 0.057350 0.102077 0.086846 0.084063
S . D 0.005030 0.011395 0.004988 0.008520 0.009450 0.010264
Sk 1.587710 11.05766 0.827988 0.983397 1.384840 0.363630
Ku 22.46852 262.1617 15.72638 17.40558 16.40645 19.39977
JB 29409.98 5113504 12448.80 15977.49 14164.61 20368.30
Panel B: Islamic index e u ns
Mean 0.000150 0.000355 0.000129 5.07E-05 0.000197 0.000299
Max 0.088677 0.056758 0.030007 0.050791 0.078117 0.076350
Min 0.082752 0.111291 0.049481 0.099417 0.081500 0.100405
S . D 0.010707 0.008769 0.005990 0.007829 0.008873 0.009846
Sk 0.215506 2.989991 0.579469 1.025973 1.293249 1.281378
Ku 15.66093 43.09163 12.32175 21.45611 20.07758 27.37355
JB 12063.12 123506.3 6632.572 25920.37 22424.74 45147.92
BITCOIN ETHEREUM XPR HALALCHAIN HELLOGOLD X8X_TOKEN
Panel C: C yp ocu encies e u ns
Mean 0.001895 0.002206 0.001247 0.002094 0.000811 0.014790
Max 0.176044 0.219405 0.423353 1.966510 4.009822 2.773463
Min 0.433714 0.563071 0.549549 1.618760 4.543656 1.971844
S . D 0.038626 0.0524499 0.062193 0.186324 0.302688 0.235321
Sk 1.215413 1.367350 0.045004 0.102793 0.906739 3.030687
Ku 19.14438 17.26383 17.96167 30.01108 115.3699 50.32298
JB 12461.20 9861.226 10465.44 34110.71 590466.0 106412.6
COVID-19 heal h c isis pe iod ( om Decembe 2, 2019 o Decembe 21, 2022)
Bah ain Kuwai Oman Qa a Saudi A abia UAE
Panel A: Con en ional index e u ns
Mean 0.000335 0.000284 0.000195 0.000156 0.000362 0.000588
Max 0.034233 0.061446 0.027620 0.034106 0.068315 0.080762
Min 0.060006 0.116340 0.057350 0.102077 0.086846 0.084063
S . D 0.005670 0.010529 0.005407 0.008492 0.010034 0.011523
Sk 1.830149 3.264765 1.121334 1.727672 1.794459 0.452809
Ku 22.00037 39.45543 17.57530 24.42590 18.98901 19.09522
JB 17425.74 63838.11 10121.37 21921.52 12497.78 12095.07
Panel B: Islamic index e u ns
Mean 8.76E-05 0.000323 3.08E-06 3.84E-05 0.000258 0.000650
Max 0.088677 0.056758 0.030007 0.036374 0.078117 0.076350
Min 0.082752 0.111291 0.049481 0.099417 0.081500 0.100405
S . D 0.010497 0.010201 0.006427 0.007762 0.009562 0.011435
Sk 0.002146 3.078752 0.716844 1.842290 1.616923 1.379493
Ku 21.54297 37.79873 13.16410 29.39142 21.97256 23.85981
JB 15888.35 57708.03 4868.715 32811.77 17116.29 20458.44
Panel C: Ra enPack COVID sen imen
Mean 2.315216 2.205838 3.495595 2.025324 6.980351 8.204676
Max 11.50000 15.36000 19.40000 23.39000 20.78000 17.89000
Min 23.23000 27.94000 30.04000 33.85000 51.29000 45.21000
(con inued)
Table 1.
Desc ip i e s a is ics
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Figu e 3.
Co ela ion be ween
Ra enPack COVID
sen imen and
con en ional index
e u ns
Di ec ional
spillo e
e ec s du ing
COVID-19
37

Figu e 4.
Co ela ion be ween
Ra enPack COVID
sen imen and Islamic
index e u ns
EJMBE
34,1
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Figu e 5.
Co ela ion be ween
Ra enPack COVID
sen imen and
C yp ocu encies
Di ec ional
spillo e
e ec s du ing
COVID-19
39
Al hough coun e in ui i e, his posi i e consis ency be ween Ra enPack COVID sen imen
and he long- un inancial and c yp ocu ency ma ke s is in line wi h he indings o
Goodell and Gou e (2021) and Sha i e al. (2020). The di e ence in esul s ega ding he
in es men ho izon e lec s he di e ences in pe cep ion be ween sho - e m and longe -
e m in es o s. Se e al s udies ha e acknowledged ha isk can dec ease signi ican ly i
he asse is held o a longe pe iod (Bu le and Domian, 1991). In ou case, long- e m
in es o s seem o be insula ed om he sho - e m ma ke luc ua ions induced by he ea
o COVID-19. This esul con i ms he se e e e ec o he COVID-19 pandemic on he
inancial ma ke s du ing he s udy pe iod. Fo ins ance, digi al cu encies can se e as a
s o e o alue du ing pe iods o ma ke u bulence. Indeed, hey also ep esen a sou ce o
po olio di e si ica ion. In his con ex , Gil-Alana e al. (2020) iden i y ha
c yp ocu encies can be an impo an di e si ica ion op ion o in es o s, mainly Bi coin
and E he eum.
Omane-Adjepong and Alagidede (2019) p o e ha all di e si ica ion bene i s wi hin
c yp ocu encies a e mos commonly ound in in a-week o in a-mon h ime ho izons o
speci ic ma ke pai s. Howe e , he le el o in e -ma ke connec i i y and ola ili y links a e
iden i ied as sensi i e o bo h liquidi y and ola ili y. Addi ionally, Liu (2019) p o ides
e idence ha po olio di e si ica ion ac oss di e en c yp ocu encies can signi ican ly
imp o e in es men ou comes. When speci ically examining he ma ke ela ionships
be ween c yp ocu encies and o he con en ional inancial a iables, Bou i e al. (2017) ind
ha Bi coin is a poo hedge and only sui able o di e si ica ion pu poses. This inding is
echoed when examining he S&P500 exchange (Tiwa i e al., 2019), Eu os oxx 50, Nikkei 225
and CSI 300 (Feng e al., 2018).
6. Robus ness check
In o de o e i y he obus ness o ou empi ical indings, we apply he ime- equency
connec edness de eloped by Ba un
ık and K
ehl
ık (2018) o check he di ec ion and scale
connec edness among hese ma ke s. Speci ically, we decompose he connec edness in o wo
di e en equency bands: he sho and long e ms, co esponding o abou one– ou days
and mo e han 10 days, espec i ely.
Figu e 6 plo s he o al ola ili y connec edness du ing a 100-mon h olling window as he
p edic i e ho izon o he unde lying decomposi ion. The o al ola ili y connec edness
depic s long- un luc ua ions a he han sho - un ones o e he en i e pe iod. The o al
ola ili y connec edness peaked du ing he COVID-19 heal h c isis. I inc eased sha ply in
2020 om 20% o 45%, which sugges s ha s ong connec edness mainly happens in he
long e m. In addi ion, since he second hal o 2020, when he pandemic was widesp ead, o al
connec edness has inc eased again, eaching a his o ical peak (45% o Saudi A abia) in
Ma ch 2020. Mo eo e , he TS index e ol es ab up ly, sugges ing he exis ence o majo
shocks lowe ing connec i i y be ween di e en GCC ma ke s.
7. Conclusion
The COVID-19 pandemic has become a se ious h ea o he GCC and global economies. Gi en
he unknown pa hways o i s sp ead and i ulence, which c ea ed huge eco e y and ea ning
oppo uni ies, i is di icul o assess i s se e i y. Fu he mo e, iden i ying he connec edness
be ween he Gul Council Coope a ion (GCC) s ock ma ke index and six c yp ocu encies is
essen ial o e ec i e isk managemen and po olio di e si ica ion. Thus, in o de o ex end
he exis ing li e a u e in his ield, his a icle mainly in es iga ed he shock ansmission
be ween Ra enPack COVID sen imen , he GCC s ock ma ke , and c yp ocu encies du ing
he heal h c isis pe iod.
EJMBE
34,1
40
0.0
0.4
0.8
1.2
1.6
2.0
II III IV III III IV III III IV
2020 2021 2022
Bah ain: Sho _ e m
5
10
15
20
25
30
35
40
II III IV III III IV III III IV
2020 2021 2022
Bah ain: Long _ e m
0.0
0.5
1.0
1.5
2.0
2.5
3.0
II III IV III III IV III III IV
2020 2021 2022
Kuwai : Sho _ e m
20
24
28
32
36
40
44
II III IV III III IV III III IV
2020 2021 2022
Kuwai : Long _ e m
.0
.1
.2
.3
.4
.5
.6
.7
.8
II III IV III III IV III III IV
2020 2021 2022
Oman: Sho _ e m
10
15
20
25
30
35
40
II III IV III III IV III III IV
2020 2021 2022
Oman: Long _ e m
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
II III IV III III IV III III IV
2020 2021 2022
Qa a : Sho _ e m
16
20
24
28
32
36
40
II III IV III III IV III III IV
2020 2021 2022
Qa a : Long _ e m
(con inued)
Figu e 6.
Dynamic equency
connec edness o he
Ra enPack COVID
sen imen and
con en ional and
Islamic s ock ma ke s
index and
c yp ocu encies
e u ns
Di ec ional
spillo e
e ec s du ing
COVID-19
41
Mo eo e , we elied on he me hodology o Diebold and Yilmaz (2012,2014) o cons uc
ne wo k-associa ed measu es. Then, he wa ele cohe ence model was applied o explo e he
co-mo emen s be ween GCC s ock ma ke s, c yp ocu encies and Ra enPack COVID
sen imen . In o de o check he obus ness o ou esul s, we employed he ime- equency
connec edness de eloped by Ba un
ık and K
ehl
ık (2018). In ac , ou empi ical analysis
illus a es he e ec o COVID-19 on all c yp ocu ency ma ke s. The ime a ia ions o s ock
e u ns display s ylized ac ails and ola ili y clus e ing ac oss all e u n se ies. This
s ess ul pe iod inc eased in es o pessimism and ea s and gene a ed nega i e emo ions.
In e es ingly, ou indings poin o a high spillo e o shocks be ween he Ra enPack
sen imen index, he Islamic and con en ional s ock e u n indices and c yp ocu encies.
In addi ion, we ound ha he Ra enPack COVID sen imen is he main ne ansmi e o
shocks o all con en ional ma ke indices and hose mos Islamic indices and
c yp ocu encies a e ne ecei e s. Mo e in e es ingly, ou esul s e eal ha he daily
le els o posi i e and nega i e shocks in s ock ma ke indices and c yp ocu encies induced
by he COVID-19 pandemic a ec hese a iables. They also show ha ea and pessimism
sen imen induced by he news ela ed o co ona i us plays a majo ole in d i ing he alues
o c yp ocu encies mo e han o he indices. We also ound ha E he eum can se e as a
hedge agains pandemic- ela ed news. In gene al, news ela ed o he COVID-19 pandemic
encou ages people o in es in c yp ocu encies. These esul s suppo he iew o p e ious
s udies sugges ing ha in es o sen imen pe o mance is a ec ed by inancial ma ke s
du ing he bubble pe iod (e.g. Cheema e al., 2020;Sol ani and Boujelbene Abbes, 2022).
The e o e, his can help und manage s adjus hei po olio isk exposu e by including
s ocks ha signi ican ly espond o COVID-19 sen imen and hose ha do no . In ac , he
0.0
0.5
1.0
1.5
2.0
2.5
3.0
II III IV III III IV III III IV
2020 2021 2022
Saudi A abia: Sho _ e m
20
24
28
32
36
40
44
II III IV III III IV III III IV
2020 2021 2022
Saudi A abia: Long _ e m
0.0
0.4
0.8
1.2
1.6
2.0
II III IV III III IV III III IV
2020 2021 2022
Uni ed A ab Emi a es: Sho _ e m
16
20
24
28
32
36
II III IV III III IV III III IV
2020 2021 2022
Uni ed A ab Emi a es: Long _ e m
Sou ce(s): Au ho s’ elabo a ions
Figu e 6.
EJMBE
34,1
42

ola ili y mechanism and in es o sen imen can be in e es ing o in es o s as i allows hem
o conside he dynamics o each ma ke and hus op imize he asse po olio alloca ion.
No es
1. h ps://coinma ke cap.com/
2. Ra enPack (h ps://co ona i us. a enpack.com) p o ides media da a ela ed o COVID-19 issues.
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Co esponding au ho
Haye Sol ani can be con ac ed a : [email p o ec ed]
Fo ins uc ions on how o o de ep in s o his a icle, please isi ou websi e:
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O con ac us o u he de ails: [email p o ec ed]
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