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Testing for time-varying stochastic volatility in Bitcoin returns

Afees Salisu () and Idris Adediran ()

No 60, Working Papers from Centre for Econometric and Allied Research, University of Ibadan

Abstract: The study will be the first to offer empirical justification for time-varying stochastic volatility in Bitcoin returns. Specifically, it tests for time variation in both the trend and transitory components of the stochastic volatility using the unobserved components model that accounts for same. Thereafter, it calculates the Bayes factor using the approach of Chan (2018) which involves the Savage-Dickey density ratio in order to avoid the computation of the marginal likelihood. The results overwhelmingly support at least one time-varying stochastic volatility component in Bitcoin returns and the transitory component is favoured in this regard. These results are robust to different data frequencies.

Keywords: Bitcoin returns; Time-varying stochastic volatility; Bayes factor (search for similar items in EconPapers)
JEL-codes: C11 C53 G17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets, nep-fmk, nep-ore, nep-pay and nep-sea
Date: 2018-07
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