Analysis of the impact of central bank digital currency on stock markets: Dynamics and implications


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The purpose of the study is to explore the influence of central bank digital currency on stock markets. To realize the purpose, the TVP-VAR model was built, which determines the impact of volatility of the CBDC attention index (CBDCAI) on the volatility of stock market indices. The study uses a time-varying vector autoregressive model that analyzes weekly data from the first week of January 2015 to the first week of July 2023. The endogenous vector to be assessed by VAR contains CBDCAI and stock market indices of different countries (France: CAC 40, The United States of America: S&P 500, Germany: DAX 40, United Kingdom: FTSE 100, China: SSEC, The Netherlands AEX 25, Switzerland: SMI 20, Japan: Nikkei 225, India: NIFTY 50, Brazil: BVSP, South Korea: KOSPI). The results of the TVP-VAR model show that compared to stock market indices, CBDCAI appeared to be relatively independent and isolated. Interdependence and mutual influence between the digital currency market of central banks and stock markets were also revealed. In addition, CBDC functions primarily as a volatility absorber rather than a source of volatility. Despite the overall ability of the CBDC market to absorb fluctuations in volatility, it may also change its function with the widespread adoption of central bank digital currencies in many countries.

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    • Figure 1. Dataset of input data
    • Figure 2. Total volatility of the system
    • Figure 3. Spread of volatility among indices
    • Figure 4. Pairwise directional volatility spillover of the CBDCAI index
    • Table 1. Descriptive data analysis
    • Table 2. ADF and Philips-Perron stationarity tests
    • Table 3. Correlational data analysis
    • Table 4. Statistical distribution of volatility
    • Table A1. Stock market indices used in the model
    • Conceptualization
      Serhiy Frolov, Mykhaylo Heyenko
    • Formal Analysis
      Serhiy Frolov, Viktoriia Datsenko
    • Methodology
      Serhiy Frolov, Maksym Ivasenko, Mykhaylo Heyenko
    • Project administration
      Serhiy Frolov, Mykhaylo Heyenko
    • Supervision
      Serhiy Frolov, Viktoriia Datsenko
    • Validation
      Serhiy Frolov, Maksym Ivasenko, Mykhaylo Heyenko
    • Writing – review & editing
      Serhiy Frolov, Mariia Dykha, Mykhaylo Heyenko, Viktoriia Datsenko
    • Investigation
      Maksym Ivasenko, Mariia Dykha
    • Resources
      Maksym Ivasenko, Mariia Dykha, Viktoriia Datsenko
    • Software
      Maksym Ivasenko
    • Visualization
      Maksym Ivasenko, Mariia Dykha, Viktoriia Datsenko
    • Writing – original draft
      Maksym Ivasenko, Mykhaylo Heyenko
    • Data curation
      Mariia Dykha
    • Funding acquisition
      Mariia Dykha, Viktoriia Datsenko