On the return-volatility relationship in the Bitcoin market around the price crash of 2013

By Elie Bouri, Georges Azzi, A. H. Dyhrberg. 2017

335 citations recorded by the source corpus.

Abstract The authors examine the relation between price returns and volatility changes in the Bitcoin market using a daily database denominated in US dollar. The results for the entire period provide no evidence of an asymmetric return-volatility relation in the Bitcoin market. The authors test if there is a difference in the return-volatility relation before and after the price crash of 2013 and show a significant inverse relation between past shocks and volatility before the crash and no significant relation after. This finding shows that, prior to the price crash of December 2013, positive shocks increased the conditional volatility more than negative shocks. This inverted asymmetric reaction of Bitcoin to positive and negative shocks is contrary to what one observes in equities. As leverage effect and volatility feedback do not adequately explain this reaction, the authors propose the safe-haven effect (Baur, Asymmetric volatility in the gold market, 2012). They highlight the benefits of adding Bitcoin to a US equity portfolio, especially in the pre-crash period. Robustness analyses show, among others, a negative relation between the US implied volatility index (VIX) and Bitcoin volatility. Those additional analyses further support the findings and provide useful information for economic actors who are interested in adding Bitcoin to their equity portfolios or are curious about the capabilities of Bitcoin as a financial asset.

Subfields: Economics and Econometrics, Finance, Information Systems

View Paper: https://www.semanticscholar.org/paper/e1d9c1c7d3afd77fb0769275e82348f9c991fc00

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Citations in the corpus

Can volume predict Bitcoin returns and volatility? A quantiles-based approach (2017, neutral): “On the other hand, Popper (2015) considers Bitcoin to be digital gold and Bouri et al. (2017a, 2017b) highlight some valuable characteristics of Bitcoin as an investment.”
Statistical properties and multifractality of Bitcoin (2017, result): “The negative skewness of Bitcoin prices at time scales shorter than one day agrees with the previous results[44, 6].”
Volatility in the Cryptocurrency Market (2019, methodology): “Using asymmetric GARCH models, Bouri et al. (2017), Baur and Dimpfl (2018), and Stavroyiannis (2018) investigate the response of the conditional variance to past positive and negative shocks and find an inverted leverage effect.”
Persistence in the cryptocurrency market (2017, positive): “Bouri et al. (2016) examine persistence in the level and volatility of Bitcoin using both parametric and semiparametric techniques; they detect long memory in both measures of volatility considered (absolute and squared returns).”
Asymmetric volatility in cryptocurrency markets: New evidence from smooth transition GARCH models (2020, neutral): “…increasing popularity of the digital currencies, there has been a growing literature in recent years analyzing the similarity in the volatility properties between cryptocurrencies and other financial assets (see e.g. Baur et al., 2018; Dyhrberg, 2016a; Bouri et al., 2017a; and Klein et al., 2018).”
Does Sentiment Impact Cryptocurrency? (2021, background): “This result is consistent with Dyhrberg (2016), Kristoufek (2015), and Bouri, Azzi, and Dyhrberg (2016), who found that investors can protect themselves from stock market price shocks using Bitcoin as a diversifying and hedging asset.”
Volatility estimation for Bitcoin: A comparison of GARCH models (2017, background): “…such as the linear GARCH (Glaser et al., 2014; Gronwald, 2014), the Threshold GARCH (TGARCH) (Dyhrberg, 2016b; Bouoiyour and Selmi, 2015, 2016; Bouri et al., 2017), the Exponential GARCH (EGARCH) (Dyhrberg, 2016a; Bouoiyour and Selmi, 2015, 2016), and the Component withMultiple…”
Bitcoin and global financial stress: A copula-based approach to dependence and causality in the quantiles (2018, methodology): “Bouri et al. (2017c) note the safe-haven property of Bitcoin against equities and reveal that Bitcoin is negatively related to the US VIX.”
The inefficiency of Bitcoin revisited: a dynamic approach (2017, background): “Bouri et al. (2017b) scrutinize hedge and safe haven properties of Bitcoin vis-à-vis several stock, bonds and currency indices around the world.”
Can cryptocurrencies be a safe haven: a tail risk perspective analysis (2018, background): “…Cheah and Fry 2015), the main drivers of Bitcoin return and volatility (Kristoufek 2015; Bouoiyour et al. 2016; Polasik et al. 2015; Ciaian, Rajcaniova, and Kancs 2016; Bouri, Azzi, and Dyhrberg 2017; Balcilar et al. 2017), and the efficiency of the Bitcoin market (Urquhart 2016; Bartos 2015).”