Navigating volatility spillover amidst investor extreme fear in stablecoin and financial markets

Abstract

Investor sentiment has the potential to serve as a predictive factor for cryptocurrency assets, yet its impact on volatility spillover across markets remains uncertain. This research investigates the influence of investor sentiment classification on the volatility spillover from stablecoins to conventional financial markets. Empirical findings reveal the role of stablecoins as net volatility receivers from financial assets during extreme fear sentiment conditions, suggesting that stablecoins may function as a potential safe-haven when investors experience significant fear, offering insights to investors and portfolio managers regarding the potential use of stablecoins as a risk mitigation tool within an investment portfolio.