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Asymmetric volatility in cryptocurrency markets: New evidence from smooth transition GARCH models

Nidhaleddine Ben Cheikh, Younes Ben Zaied and Julien Chevallier

Finance Research Letters, 2020, vol. 35, issue C

Abstract: This paper investigates the presence of asymmetric volatility dynamics in Bitcoin, Ethereum, Ripple, and Litecoin. Asymmetric effects between good and bad news are traditionally modeled using threshold GARCH models that allow only for two possible variance regimes. We experiment a slightly flexible specification for the conditional variance by using a Smooth Transition GARCH (ST-GARCH) model, where a continuum of intermediate states is allowed between the two extreme volatility regimes. We feature an inverted asymmetric reaction for the majority of cryptocurrencies. The presence of positive return-volatility relationship, which is different from other traditional assets, supports the safe-haven hypothesis in cryptocurrencies.

Keywords: Cryptocurrencies; Asymmetric volatility; Smooth transition GARCH (search for similar items in EconPapers)
JEL-codes: G22 C58 G11 G15 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:35:y:2020:i:c:s154461231930162x

DOI: 10.1016/j.frl.2019.09.008

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