Global risk factors and the time-varying connectedness between clean and dirty cryptocurrencies

This study investigates how global risk factors shape the dynamic connectedness between clean and dirty cryptocurrencies. Using daily data from November 2017 to October 2024, we construct equally and value-weighted clean-dirty correlation indexes and examine their relationship with four key stressors: economic policy uncertainty (EPU), geopolitical risk (GPR), financial market volatility (VIX), and environmental risk, proxied by the Air Quality Index (AQI). Employing a three-method framework, Multivariate Generalized Autoregressive Conditional Heteroskedasticity-Dynamic Conditional Correlation (MGARCH-DCC) for time-varying correlations, Time-Varying Parameter Vector Autoregression (TVP-VAR) for directional connectedness, and quantile-on-quantile regression for tail dependence, we reveal that correlations between clean and dirty cryptocurrencies are generally positive but have sharp fluctuations during systemic crises. VIX and GPR emerge as the dominant shock transmitters, whereas EPU plays a limited role, and AQI has asymmetric effects. These findings show that comovement between clean and dirty cryptocurrencies is regime dependent and highly sensitive to external shocks.