Cryptomarket Volatility in Times of COVID-19 Pandemic: Application of GARCH Models

Mrestyal Khan () and Maaz Khan ()
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Mrestyal Khan: COMSATS University Islamabad, Islamabad, Pakistan
Maaz Khan: Islamabad Policy Research Institute (IPRI), Islamabad, Pakistan, and COMSATS University Islamabad, Islamabad, Pakistan

Economic Research Guardian, 2021, vol. 11, issue 2, 170-181

Abstract: COVID-19 pandemic has caused significant losses and an increase in the level of risk in the financial markets and global economy. Thus in this study, we model the crypto market volatility behavior during the COVID-19 crisis. GARCH (1, 1) and GJR-GARCH (1, 1) were applied to model the volatility clustering and leverage effects in the intraday day (15-minute interval) returns of Bitcoin, Ethereum, and Litcoin ranging from 11th April 2019 to 8th February 2021. The empirical findings from GARCH (1, 1) model indicates the presence of volatility clustering in the crypto market. Moreover, the results of the GJR-GARCH (1, 1) indicate the presence of leverage effects in the financial returns series of all three crypto currencies. Furthermore, the excess kurtosis confirms the existence of fat-tail phenomena in the crypto market. Overall, the findings from this study showed that in times of COVID 19 pandemic the crypto market returns series showed volatility persistence, fat-tail phenomena, and leverage effects. These outcomes provide a better understanding for financial investors to invest rationally and cautiously during pandemic times.

Keywords: COVID-19; GARCH; GJR-GARCH; Volatility; Cryptocurrency (search for similar items in EconPapers)
JEL-codes: C22 C55 G15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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