Existence of Speculative Bubbles for the US at Times of Two Major Financial Crises in the Recent Past: An Econometric Check of BitCoin Prices

Sovik Mukherjee
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Sovik Mukherjee: Department of Economics, Faculty of Commerce and Management Studies, St. Xavier’s University

Chapter Chapter 23 in Blockchain Economics and Financial Market Innovation, 2019, pp 475-486 from Springer

Abstract: Abstract The last decade stands as a witness to a large number digital currencies coming into existence, such as—LiteCoin, BitCoin, Ripple, AuroraCoin, DogeCoin, etc. BitCoin being the most prominent among them, both in terms of its impressive price development and the price volatility it has. In this paper, the author uses a speculative bubble tracker, based on Wiener stochastic process, at times of two major financial crises, i.e. during the 2008–2009 US Subprime Mortgage Market Crisis and the Global Recession that started from 2010 onwards. The data used has been for the daily closing prices (converted into monthly after taking a geometric mean) from July 2008 to July 2010. Then from July 2010—July 2012, 2012–2014 and finally, 2014–2016. Using such data, the author traces out the price movements and points out periods of mass hysteria i.e. a ‘speculative bubble’ over the period concerned by comparing the results derived using a Brownian motion equation form used in physics and hence, tries to correlate the price fluctuations of BitCoins with fluctuations in the crisis index (as constructed by the author) for USA. Intriguingly, significance of speculative bubbles is prevalent at times of these financial crises.

Keywords: Financial crises; Wiener process; Social media; Bubble; Search spikes (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-030-25275-5_23

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DOI: 10.1007/978-3-030-25275-5_23

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