An empirical investigation of volatility dynamics in the cryptocurrency market

Paraskevi Katsiampa

Research in International Business and Finance, 2019, vol. 50, issue C, 322-335

Abstract: By employing an asymmetric Diagonal BEKK model, this paper examines volatility dynamics of five major cryptocurrencies, namely Bitcoin, Ether, Ripple, Litecoin, and Stellar Lumen. It is shown that the conditional variances of all the five cryptocurrencies are significantly affected by both previous squared errors and past conditional volatility. Moreover, in the case of Bitcoin, Ether, Ripple, and Litecoin, asymmetric past shocks have a significant effect in the current conditional variance. Similar results are obtained for the cryptocurrencies' conditional covariances, which are significantly affected by cross products of previous error terms and past covariance terms while capturing asymmetric effects of past shocks accordingly. It is also shown that time-varying conditional correlations exist and are mostly positive. Finally, the cryptocurrencies' volatility dynamics are found to be responsive to major news, with Bitcoin and Litecoin exhibiting one structural breakpoint each in the conditional variance. The results improve our understanding of interdependencies between cryptocurrencies as well as of the events that affect their volatility dynamics and thus have important implications for both cryptocurrency users and investors.

Keywords: Bitcoin; Cryptocurrency; Asymmetric Diagonal BEKK; MGARCH; Volatility; Conditional correlations (search for similar items in EconPapers)
JEL-codes: C32 C5 G1 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:50:y:2019:i:c:p:322-335

DOI: 10.1016/j.ribaf.2019.06.004

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