On Cointegration and Cryptocurrency Dynamics

Georg Keilbar and Yanfen Zhang

No 2020-012, IRTG 1792 Discussion Papers from Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series"

Abstract: This paper aims to model the joint dynamics of cryptocurrencies in a nonstationary setting. In particular, we analyze the role of cointegration relationships within a large system of cryptocurrencies in a vector error correction model (VECM) framework. To enable analysis in a dynamic setting, we propose the COINtensity VECM, a nonlinear VECM specification accounting for a varying systemwide cointegration exposure. Our results show that cryptocurrencies are indeed cointegrated with a cointegration rank of four. We also find that all currencies are affected by these long term equilibrium relations. A simple statistical arbitrage trading strategy is proposed showing a great in-sample performance.

Keywords: Cointegration; VECM; Nonstationarity; Cryptocurrencies (search for similar items in EconPapers)
JEL-codes: C00 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cwa, nep-ets, nep-mon, nep-ore and nep-pay
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Citations: View citations in EconPapers (9)

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Journal Article: On cointegration and cryptocurrency dynamics (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:irtgdp:2020012

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