Unveiling Interconnectedness and Volatility Transmission: A Novel GARCH Analysis of Leading Global Cryptocurrencies

International Journal of Economics and Financial Issues Pub Date : 2024-05-14 DOI:10.32479/ijefi.14884

S. Kushwah, Shab Hundal, Payal Goel

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Abstract

The cryptocurrency industry has grown erratically and at an alarming pace during its brief life. It has received massive attention from the practitioners, academicians, and especially media since Bitcoin was introduced in 2009. The current paper investigates the volatility dynamics of five major cryptocurrencies, namely Bitcoin, Ethereum, Litecoin, DASH and Ripple’s XRP. It discloses the impact of volatility in the prices of other cryptocurrencies on the Bitcoin’s price volatility. The time series of all the cryptocurrencies prices for the period 2016 to 2022 are considered and preliminary analysis highlights that there exists conditional volatility in all the cryptocurrencies which allows us to use the family of GARCH model. The research findings reveal the significant effect of asymmetric past shocks on the current volatility of Bitcoins. Further, the volatility of remaining virtual currencies are also significantly affecting the Bitcoin’s current volatility. Therefore, the present study unveils the absence of diversification benefits in the market of virtual assets as significant effect of price volatility of other digital coins has been found on the price volatility of Bitcoins. The practical implication of our study is that the findings offer new information for investors and portfolio managers, who are attracted to invest in or hedging strategies in cryptocurrencies.

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揭示相互关联性和波动性传递：全球主要加密货币的新型 GARCH 分析

加密货币行业在其短暂的生命中以惊人的速度不稳定地发展着。自 2009 年比特币问世以来，它受到了从业者、学者，尤其是媒体的广泛关注。本文研究了五种主要加密货币，即比特币、以太坊、莱特币、DASH 和瑞波币 XRP 的波动动态。它揭示了其他加密货币价格波动对比特币价格波动的影响。研究考虑了 2016 年至 2022 年期间所有加密货币价格的时间序列，初步分析显示，所有加密货币都存在条件波动性，因此我们可以使用 GARCH 模型族。研究结果表明，过去的非对称冲击对比特币当前的波动性有重大影响。此外，其他虚拟货币的波动性也会对比特币当前的波动性产生重大影响。因此，本研究揭示了虚拟资产市场缺乏多样化收益的问题，因为其他数字货币的价格波动对比特币的价格波动有重大影响。我们研究的实际意义在于，研究结果为投资者和投资组合经理提供了新的信息，吸引他们投资加密货币或采取对冲策略。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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International Journal of Economics and Financial Issues

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期刊介绍： International Journal of Economics and Financial Issues (IJEFI) is the international academic journal, and is a double-blind, peer-reviewed academic journal publishing high quality conceptual and measure development articles in the areas of economics, finance and related disciplines. The journal has a worldwide audience. The journal''s goal is to stimulate the development of economics, finance and related disciplines theory worldwide by publishing interesting articles in a highly readable format. The journal is published Bimonthly (6 issues per year) and covers a wide variety of topics including (but not limited to): Macroeconomcis International Economics Econometrics Business Economics Growth and Development Regional Economics Tourism Economics International Trade Finance International Finance Macroeconomic Aspects of Finance General Financial Markets Financial Institutions Behavioral Finance Public Finance Asset Pricing Financial Management Options and Futures Taxation, Subsidies and Revenue Corporate Finance and Governance Money and Banking Markets and Institutions of Emerging Markets Public Economics and Public Policy Financial Economics Applied Financial Econometrics Financial Risk Analysis Risk Management Portfolio Management Financial Econometrics.