Bubble detection in Bitcoin and Ethereum and its relationship with volatility regimes

Renan Diniz, Diogo de Prince and Leandro Maciel
Authors registered in the RePEc Author Service: Diogo de Prince Mendonça ()

Journal of Economic Studies, 2022, vol. 50, issue 3, 429-447

Abstract: Purpose - The aim of this paper is to test the existence of bubbles for the daily prices of cryptocurrencies Bitcoin and Ethereum and verify if there is a relationship between bubbles and volatility regimes. Design/methodology/approach - The authors test the presence of bubbles with the generalized supremum augmented Dickey–Fuller (GSADF) test using critical values simulated by the bootstrap procedures of Gutierrez (2011), Harveyet al.(2016) and Pedersen and Schütte (2020). Also, the authors estimate Markov regime switching generalized autoregressive conditional heteroskedasticity model for these cryptocurrencies. Findings - The GSADF test result indicates the presence of bubbles for both cryptocurrencies. Simulating critical values by wild-bootstrap, which is robust to non-stationary volatility, leads to the highest number of bubbles in both cryptocurrencies. In addition, based on the estimates of conditional variance models with regime changes, the authors find that the bubbles identified are associated with a regime of low returns volatility, indicating a change in the trade-off between risk and return when the prices of cryptocurrencies differ from their fundamental values. Originality/value - To the best of the authors knowledge, there are no studies that test the explosive behavior for cryptocurrencies by the GSADF test using the bootstrap method to simulate critical values from the procedures of Harveyet al.(2016) or Pedersen and Schütte (2020). These bootstrapping procedures are robust to heteroscedasticity and avoid the detection of false bubbles. Further, the advantage of Harveyet al.(2016) procedure is the robustness to non-stationary volatility.

Keywords: Speculative bubbles; Cryptocurrencies; Volatility; MSGARCH models (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:jespps:jes-09-2021-0452

DOI: 10.1108/JES-09-2021-0452

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().