Volatility and dependence in cryptocurrency and financial markets: a copula approach

Liu Jinan and Apostolos Serletis
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Liu Jinan: Department of Economics, University of Nebraska, Omaha, USA

Studies in Nonlinear Dynamics & Econometrics, 2024, vol. 28, issue 1, 119-149

Abstract: We use a semiparametric GARCH-in-Mean copula model to examine the volatility dynamics and tail dependence between cryptocurrency markets and financial markets. We do not find any statistically significant tail dependence between the financial and cryptocurrency markets, but we find lower tail dependence between Bitcoin and stock returns. There is lower tail dependence among Bitcoin, Ethereum, and Litecoin, and the lower tail dependence between Ethereum and Litecoin returns is the strongest. The GARCH-in-Mean model shows that the uncertainty effect on cryptocurrency returns is not statistically significant, while uncertainty has a negative and statistically significant effect on Bitcoin returns. The fact that there is no tail dependence between cryptocurrency and the interest rate or the effective exchange rate of U.S. dollar suggests that cryptocurrency could offer safe haven, defined as an asset that is uncorrelated with stocks and bonds.

Keywords: Bitcoin price; copula; cryptocurrency price; GARCH-in-Mean model (search for similar items in EconPapers)
JEL-codes: C58 F37 G17 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1515/snde-2022-0029

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