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Analysis of the bitcoin stock market indexes using comparative study of two models SV with MCMC algorithm

A. Hachicha () and F. Hachicha ()
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A. Hachicha: University of Sfax
F. Hachicha: University of Sfax

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 2, No 9, 647-673

Abstract: Abstract The purpose of this article is to find a better technique for estimating the volatility of the price of bitcoin on the one hand and to check if this special kind of asset called cryptocurrency behaves like other stock market indices. We include five stock market indexes for different countries such as Standard and Poor’s 500 composite Index (S&P), Nasdaq, Nikkei, Stoxx, and DowJones. Using daily data over the period 2010–2019. We examine two asymmetric stochastic volatility models used to describe the volatility dependencies found in most financial returns. Two models are compared, the first is the autoregressive stochastic volatility model with Student’s t-distribution (ARSV-t), and the second is the basic SVOL. To estimate these models, our analysis is based on the Markov Chain Monte-Carlo method. Therefore, the technique used is a Metropolis–Hastings (Hastings in Biometrika 57:97–109, 1970), and the Gibbs sampler (Casella and George in Am Stat 46:167–174, 1992; Gelfand and Smith in J Am Stat Assoc 85:398–409, 1990; Gilks and Wild in 41:337–348, 1992). Model comparisons illustrate that the ARSV-t model performs better performances. We conclude that this model is better than the SVOL model on the MSE and AIC function. This result concerns bitcoin as well as the other stock market indices. Without forgetting that our finding proves the efficiency of Markov Chain for our sample and the convergence and stability for all parameters to a certain level. On the whole, it seems that permanent shocks have an effect on the volatility of the price of the bitcoin and also on the other stock market. Our results will help investors better diversify their portfolio by adding this cryptocurrency.

Keywords: Bitcoin; Stock market indexes; Volatility dependencies; SVOL; MCMC; Metropolis Hasting (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 C52 G12 G17 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11156-020-00905-w

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