Forecasting volatility in bitcoin market

Mawuli Segnon () and Stelios Bekiros
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Mawuli Segnon: University of Münster

Annals of Finance, 2020, vol. 16, issue 3, No 6, 435-462

Abstract: Abstract In this paper, we revisit the stylized facts of bitcoin markets and propose various approaches for modeling the dynamics governing the mean and variance processes. We first provide the statistical properties of our proposed models and study in detail their forecasting performance and adequacy by means of point and density forecasts. We adopt two loss functions and the model confidence set test to evaluate the predictive ability of the models and the likelihood ratio test to assess their adequacy. Our results confirm that bitcoin markets are characterized by regime shifting, long memory and multifractality. We find that the Markov switching multifractal and FIGARCH models outperform other GARCH-type models in forecasting bitcoin returns volatility. Furthermore, combined forecasts improve upon forecasts from individual models.

Keywords: Bitcoin; Multifractal processes; GARCH processes; Model confidence set; Likelihood ratio test (search for similar items in EconPapers)
JEL-codes: C52 C53 C58 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s10436-020-00368-y

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