Liquidity Connectedness of Cryptocurrencies and Stock Markets during COVID-19 : A Wavelet Coherence Approach

Using wavelet coherence framework on five major cryptocurrencies and three major stock market indices over the COVID-19 period from January 1st, 2020 to February 8th, 2021, our study concludes that SSEC index liquidity co-moves with liquidity of all the cryptocurrencies, while liquidities of Nikkei 225 and NYSE indices very weakly or not at all co-move with the sampled cryptocurrencies over most of our sample period. Our findings show that SSEC index liquidity positively co-moves with liquidities of all sampled crypto currencies over a limited time span and generally at short-term frequency band of 0-8 days; however, Ripple liquidity positively co-moves with liquidity of SSEC index at both shorter-horizon and long-term. Overall, our study provides useful insights that the choice of the crypto currency can play a significant role in portfolio liquidity diversification for investors investing in Nikkei 225 or NYSE index