Forecasting volatility of Bitcoin

Lykke Øverland Bergsli, Andrea Falk Lind, Peter Molnár and Michał Polasik

Research in International Business and Finance, 2022, vol. 59, issue C

Abstract: Since Bitcoin price is highly volatile, forecasting its volatility is crucial for many applications, such as risk management or hedging. We study which model is the most suitable for forecasting Bitcoin volatility. We consider several GARCH and two heterogeneous autoregressive (HAR) models and compare them. Since we utilize realized variance estimated from high frequency data as a proxy for true volatility, we can draw sharper conclusions than studies which use only daily data. We find that EGARCH and APARCH perform best among the GARCH models. HAR models based on realized variance perform better than GARCH models based on daily data. Superiority of HAR models over GARCH models is strongest for short-term volatility forecasts.

Keywords: Bitcoin; Volatility forecasting; Realized variance; HAR; GARCH (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001616

DOI: 10.1016/j.ribaf.2021.101540

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