Dynamic volatility connectedness between thermal coal futures and major cryptocurrencies: evidence from China

Despite the crucial role of thermal coal in generating the electricity used for cryptocurrency mining, the volatility linkage between the cryptocurrency and thermal coal markets is yet to be studied. We investigate the time-varying volatility connectedness between the two markets using their realized variances and semi-variances. Employing a multivariate Heterogeneous Autoregressive model, which accounts for both long memory and structural breaks in realized volatility time series, we find that China's thermal coal futures market is significantly dependent on the cryptocurrency market's volatility while the impact of the energy market on the cryptocurrency market is inconsequential. Moreover, the connectedness is asymmetrical in the sense that the bad volatility connectedness is greater than the good volatility connectedness. Finally, the determinants of the dynamic connectedness highlight the role of the production channel in fuelling the volatility transmission between these two markets.