Comovement and instability in cryptocurrency markets

Pierangelo De Pace and Jayant Rao

International Review of Economics & Finance, 2023, vol. 83, issue C, 173-200

Abstract: We analyze the extent of comovement between daily price returns of nine major cryptocurrencies from April 2013 to February 2021. We assess its evolution using bivariate and multivariate modeling approaches, and detect pronounced time variation. Generally, comovement is initially low and positive, but increases substantially between early 2017 and late 2018 and stays high until the end of the sample. We then adopt a right-tail version of the Augmented Dickey–Fuller unit root test to identify periods of mildly explosive behavior (statistical instability) in the Network Value to Transactions (NVT) ratio of seven cryptocurrencies. The NVT ratio is a novel measure of the dollar value of cryptocurrency transaction activity relative to network value. We show evidence of significant mild explosiveness in all seven cryptocurrencies. In 2018 and in the second half of 2019, several cryptocurrencies experience often simultaneous instability. Instability is a dominant feature of these markets.

Keywords: Cryptocurrencies; Asset pricing; Comovement; NVT ratio; Mild explosiveness (search for similar items in EconPapers)
JEL-codes: C58 G1 G10 G11 G12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Comovement and Instability in Cryptocurrency Markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:83:y:2023:i:c:p:173-200

DOI: 10.1016/j.iref.2022.08.010

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