Forecasting Volatility in Cryptocurrency Markets
Mawuli Segnon and
No 7919, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster
In this paper, we revisit the stylized facts of cryptocurrency markets and propose various approaches for modeling the dynamics governing the mean and variance processes. We first provide the statistical properties of our proposed models and study in detail their forecasting performance and adequacy by means of point and density forecasts. We adopt two loss functions and the model confidence set (MSC) test to evaluate the predictive ability of the models and the likelihood ratio test to assess their adequacy. Our results confirm that cryptocurrency markets are characterized by regime shifting, long memory and multifractality. We find that the Markov switching multifractal (MSM) and FIGARCH models outperform other GARCH-type models in forecasting bitcoin returns volatility. Furthermore, combined forecasts improve upon forecasts from individual models.
Keywords: Bitcoin; Multifractal processes; GARCH processes; Model confidence set; Likelihood ratio test (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for, nep-ore, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:7919
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