Dynamic impact of cryptocurrency trading on the Egyptian stock market performance: evidence from ARIMA modelling post-pandemic devaluation period

Purpose This paper aims to investigate the effect of cryptocurrency on the Egyptian stock market from November 2021 to January 2024 daily and to determine if cryptocurrencies function as complements or substitutes for domestic equities in a constrained emerging economy. Design/methodology/approach An ARIMA model analysis was employed to test the hypotheses using logarithmic returns for EGX30 as the dependent variable. The model incorporates four cryptocurrency proxies (Bitcoin, Binance, Ethereum and Neo) and is controlled for sovereign risk using macroeconomic variables, specifically the daily interbank rate and the EGP/USD exchange rate. Findings The results revealed a significant negative effect of cryptocurrency trading on the performance of the Egyptian stock market. There is a significant and negative effect of NEOR on the Egyptian stock market performance, indicating a liquidity substitution effect. These results support the risk-return trade-off theory, since the findings indicated that investors prefer reducing their investments in traditional stocks, believing that investments in cryptocurrencies would provide them with higher returns, particularly during the pandemic when virtual cryptocurrencies served as a possible shield against economic instability. Practical implications The findings have practical implications for scholars, governments, investors and portfolio managers who aim to understand the relationship between cryptocurrency and stock market performance to develop competitive investment strategies within a legislative framework. Hence, Egyptian policymakers should monitor cryptocurrency movements to mitigate negative impacts on stock market stability through enhancing the attractiveness of regulated domestic investment alternatives to counter the speculative pull of unregulated digital assets. Moreover, investors need to diversify their portfolios by integrating cryptocurrencies to reduce stock market volatility. Originality/value This paper extends the literature by providing a comprehensive examination of the effect of the cryptocurrency market on the performance of the Egyptian stock market, during a period of acute domestic policy shifts and currency devaluation (2022–2023). It offers a nuanced refinement to modern portfolio theory (MPT) by demonstrating how institutional constraints and sovereign risk drive capital flight towards speculative altcoins.