LONG-TERM EQUILIBRIUM RELATIONSHIPS BETWEEN THE STOCK AND CRYPTOCURRENCIES MARKETS

Abstract

This study investigates the long-term equilibrium relationships between the stock market, represented by the Dow Jones Industrial Average (DJIA), and a comprehensive range of 401 cryptocurrencies traded on Binance. Employing Johansen cointegration tests on data from January 2018 to May 2024, we examine pairwise relationships between 30 DJIA components and cryptocurrencies across various categories. Our findings reveal varying degrees of integration, with some stocks like Visa and Walt Disney Company showing strong cointegration with numerous cryptocurrencies. Sector-specific patterns emerge, such as significant links between technology stocks and platform tokens, and between financial services and DeFi tokens. Platform tokens exhibit the highest overall integration with stocks, followed by DeFi and NFT/Gaming domains. Notably, some cryptocurrencies, including major ones like Ethereum and Bitcoin, show high levels of cointegration, while others display independence. Stablecoins demonstrate strong cointegration with all stock prices. These results provide nuanced insights into the complex interactions between traditional and digital finance, contributing to our understanding of market integration, diversification strategies, and the evolving financial ecosystem.

Keywords

• cryptocurrency
• stock market integration
• cointegration analysis
• cross-market analysis
• sector-specific cointegration
• crypto-stock relationships