An empirical investigation of volatility dynamics in the cryptocurrency market

By Paraskevi Katsiampa. Research In International Business and Finance, 2019

151 citations recorded by the source corpus.

By employing an asymmetric Diagonal BEKK model, this paper examines volatility dynamics of five major cryptocurrencies, namely Bitcoin, Ether, Ripple, Litecoin, and Stellar Lumen. It is shown that the conditional variances of all the five cryptocurrencies are significantly affected by both previous squared errors and past conditional volatility. Moreover, in the case of Bitcoin, Ether, Ripple, and Litecoin, asymmetric past shocks have a significant effect in the current conditional variance. Similar results are obtained for the cryptocurrencies' conditional covariances, which are significantly affected by cross products of previous error terms and past covariance terms while capturing asymmetric effects of past shocks accordingly. It is also shown that time-varying conditional correlations exist and are mostly positive. Finally, the cryptocurrencies' volatility dynamics are found to be responsive to major news, with Bitcoin and Litecoin exhibiting one structural breakpoint each in the conditional variance. The results improve our understanding of interdependencies between cryptocurrencies as well as of the events that affect their volatility dynamics and thus have important implications for both cryptocurrency users and investors.

Subfields: Economics and Econometrics, Information Systems

View Paper: https://www.semanticscholar.org/paper/53d9ab395ba03b6ea435d4926a2e7da6002d1f1c

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Information Systems

Citations in the corpus

Value-at-risk and expected shortfall in cryptocurrencies’ portfolio: a vine copula–based approach (2019, unknown): “Nevertheless, some articles have focused on the multivariate cryptocurrency context, such as Jiang and Liang (2017), Liu (2019), Katsiampa (2019a), Katsiampa (2019b), Koutmos (2018), Borri (2019), Brauneis andMestel (2019) and Chaim and Laurini (2019).”
Cryptocurrency trading: a comprehensive survey (2020, unknown): “In 2019, Katsiampa [132] further researched an asymmetric diagonal BEKK model to examine conditional variances of five cryptocurrencies that are significantly affected by both previous squared errors and past conditional volatility.”
The non-fungible token (NFT) market and its relationship with Bitcoin and Ethereum (2021, background): “The academic literature has studied the link between different cryptocurrencies and found signiﬁcant interdependencies, as positive time-varying conditional correlations exist [8]; Bitcoin leads in importance for return and volatility spillover, e.g., [9,10].”
High frequency volatility co-movements in cryptocurrency markets (2019, result): “Moreover, in view of statistically significant estimates for the asymmetry terms, it is shown that the conditional covariances also capture asymmetric effects of good and bad news accordingly, a result which is again consistent with the study of Katsiampa (2018b).”