The contagion effect of the FTX cryptocurrency exchange's crash on the stock markets

The cryptocurrency market is very attractive for investors, but it has experienced several major crises in recent years due to its inadequacies with regard to transparency and auditing. The FTX cryptocurrency exchange's crash was one of the most crucial events for the cryptocurrency market. Therefore, I investigate the contagion impact of the FTX crash on stock markets (S&P 500, TSX, FTSE100, BIST100, SENSEX, SSE, NIKKEI 225, KOSPI 100 and ASX 200), using a time-varying parameter–vector autoregression (TVP-VAR) extended joint connectedness model and covolatility, cokurtosis, and coskewness tests. The empirical findings, based on a daily dataset for the period 2021–2023, indicate that the FTX collapse had a clear contagion impact solely on the BIST 100. One possible explanation for this is that Turkish investors who suffered losses on their FTX investment sought to compensate for their diminishing wealth, especially to meet margin calls, by liquidating their holdings in the BIST 100. Another possible explanation is the inherent fragility of the BIST 100, which prevents it from being perceived as a safe-haven asset during turbulent periods. The findings can help policy makers and investors develop policies and strategies to defend against the contagion impact of cryptocurrencies.