Virtual assets and currency sector are becoming increasingly intertwined. According to new IMF research, the correlation of crypto assets with traditional holdings like equities has increased dramatically as usage has grown, limiting their risk perception investment opportunities, and raising the danger of spillover across financial markets. Theoretical and empirical findings concerning cryptocurrencies and stock market behaviour have been misleading thereby putting policy makers at a crossroads. This paper therefore examines the response of stock market to investment in cryptocurrencies in the US stock market. Monthly data covering the period between February 2016 to February 2022 was used. The answer was achieved using novel dynamic autoregressive-distributed lag (ARDL) simulation techniques along with the Breitung and Candelon causality test. Findings revealed that cryptocurrencies impacted positively on the US stock market. Secondly, investment in Bitcoin and Ethereum is a good predictor of stock market while no evidence of causality between investment in ripple and stock market indices in the US stock market. Thirdly, a long-run relationship exists between investment in cryptocurrencies and behaviour of stock market indices in the United State, and that investment in cryptocurrencies has a significant long-run increasing effect on stock prices in United State.
Cite this paper
Tosin-Amos, A. (2023). Stock Market Response to Investment in Cryptocurrencies in United State: A Dynamic ARDL Simulation Approach. Open Access Library Journal, 10, e9769. doi: http://dx.doi.org/10.4236/oalib.1109769.
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