Decomposing interconnectedness: A study of cryptocurrency spillover effects in global financial markets

This paper employs a novel R2 decomposition connectivity method to analyze the spillover effects between cryptocurrencies and other markets, distinguishing between contemporaneous and lagged components. There are evidences shows cryptocurrency markets exhibit stronger contemporaneous dependency compared to lagged periods. The lagged net spillover effects in the cryptocurrency market demonstrate higher similarity to the overall net spillover effects, especially during periods of significant decline in net spillover effects. The contemporaneous net spillover effects of Fed's balance sheet show higher correlation with the overall net spillover effects during the COVID-19 pandemic.