Dynamic market volatility: Evidence from the interdependence of cryptocurrency, stock market, and commodity market

This study examined the impact of historical volatility and spillover volatility on cryptocurrency (Bitcoin), stock market (Standard & Poor’s 500), and commodity market (Bloomberg Commodity Index). The main objective is to shed light on the interrelationships and dynamics of volatility in these three different asset classes, with data collected daily from January 1, 2019 to April 30, 2025. Vector autoregressive (VAR) and structural vector autoregressive (SVAR) models were adopted for analysis, revealing key findings of: (1) a hierarchical volatility structure with Bitcoin often heading other markets; (2) limited short-term spillovers but significant cross-market connections during economic shocks; and (3) the asymmetric role of commodities as partial equity hedges. This study confirmed the principles of modern portfolio theory, as diversification across the three asset classes could still bring benefits during market turbulence. In particular, the combination of Bitcoin and the volatility index (VIX) could improve the portfolio structure and reduce the risk associated with stock volatility. When including these assets in the model, it is, however, necessary to consider long-term imbalances and geopolitical factors.