Collective behavior of cryptocurrency price changes

Darko Stosic, Dusan Stosic, Teresa B. Ludermir and Tatijana Stosic

Physica A: Statistical Mechanics and its Applications, 2018, vol. 507, issue C, 499-509

Abstract: Digital assets termed cryptocurrencies are correlated. We analyze cross correlations between price changes of different cryptocurrencies using methods of random matrix theory and minimum spanning trees. We find that the cross correlation matrix exhibits non-trivial hierarchical structures and groupings of cryptocurrency pairs, which are not present in the partial cross correlations. In sharp contrast to the predictions for other financial markets, we discover that most of the eigenvalues in the spectrum of the cross correlation matrix do not agree with the universal predictions of random matrix theory, but the few of the largest eigenvalues deviate as expected. The minimum spanning tree of cryptocurrency cross correlations reveals distinct community structures that are surprisingly stable. Collective behaviors that are present in the cryptocurrency market can be useful for the construction of portfolio of cryptocurrencies as well as for future research on the subject.

Keywords: Correlation matrix; Partial correlation matrix; Random matrix theory; Minimum spanning tree; Cryptocurrencies; Bitcoin (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (37)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378437118305946
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:507:y:2018:i:c:p:499-509

DOI: 10.1016/j.physa.2018.05.050

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().