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Empirical evidence of extreme dependence and contagion risk between main cryptocurrencies

Aviral Tiwari (), Adeolu O. Adewuyi, Claudiu Albulescu () and Mark Wohar ()

The North American Journal of Economics and Finance, 2020, vol. 51, issue C

Abstract: This study examines the dependence and contagion risk between Bitcoin (BTC), Litecoin (LTC) and Ripple (XRP) using non-parametric mixture copulas (developed by Zimmer, 2012) and recently proposed methods of full-range tail dependence copulas (advanced by Hua, 2017; Su and Hua, 2017), for the period from 04-08-2013 to 17-06-2018. The Chi-plots and Kendall plots results show heavy tail dependence between each pairs of the cryptocurrencies. Evidence from the mixture copula indicates that for the BTC-LTC pair the upper-tail dependence is both stronger and more prevalent, while for the other pairs of cryptocurrencies the lower-tail dependence is very strong and more prevalent. However, the results of the full-range tail dependence copulas reveal a strong and prevalent upper and lower-tail dependence of each pairs of cryptocurrencies. These results provide evidence of significant risk contagion among price returns of major cryptocurrencies, both in bull and bear markets.

Keywords: Cryptocurrencies; Risk contagion; Tail dependence; Mixture copula; Full-range tail dependence copulas (search for similar items in EconPapers)
JEL-codes: C22 G11 G15 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.najef.2019.101083

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