Asymmetric volatility in the cryptocurrency market: New evidence from models with structural breaks

David Y. Aharon, Hassan Anjum Butt, Ali Jaffri and Brian Nichols

International Review of Financial Analysis, 2023, vol. 87, issue C

Abstract: Previous literature shows that major cryptocurrencies exhibit inverse asymmetric volatility: positive shocks increase price volatility more than negative ones. In this study, we revisit the asymmetric volatility dynamics of major cryptocurrencies using asymmetric GARCH models that incorporate endogenously detected structural breaks. Our results show that after incorporating structural breaks, volatility persistence decreases and asymmetric volatility increases for all cryptocurrencies in this study. Thus, prior research that ignores structural breaks underestimates the impact of unexpected news on price volatility in cryptocurrency markets. We also present important economic implications of our results: ignoring structural breaks adversely affects the hedging strategies, derivatives valuations, and risk exposure measurement of investors in cryptocurrency markets.

Keywords: Cryptocurrencies; Asymmetric volatility; Volatility persistence; Structural breaks (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923001679

DOI: 10.1016/j.irfa.2023.102651

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