Multivariate Analysis of Cryptocurrencies

Vincenzo Candila

doi:10.3390/econometrics9030028

Abstract

Recently, the world of cryptocurrencies has experienced an undoubted increase in interest. Since the first cryptocurrency appeared in 2009 in the aftermath of the Great Recession, the popularity of digital currencies has, year by year, risen continuously. As of February 2021, there are more than 8525 cryptocurrencies with a market value of approximately USD 1676 billion. These particular assets can be used to diversify the portfolio as well as for speculative actions. For this reason, investigating the daily volatility and co-volatility of cryptocurrencies is crucial for investors and portfolio managers. In this work, the interdependencies among a panel of the most traded digital currencies are explored and evaluated from statistical and economic points of view. Taking advantage of the monthly Google queries (which appear to be the factors driving the price dynamics) on cryptocurrencies, we adopted a mixed-frequency approach within the Dynamic Conditional Correlation (DCC) model. In particular, we introduced the Double Asymmetric GARCH–MIDAS model in the DCC framework.

Highlights

During the last few years, interest in the world of cryptocurrencies has exploded, as underlined by the huge rise in Google queries concerning digital currencies
Unlike a standard currency, which is supported by a government or central bank, a digital currency has the feature of allowing online payments linking the giver and the recipient directly, without using a financial institution
The first digital currency, named Bitcoin, dates back to 2008. It was developed in the middle of the Great Recession period based on the paper of Nakamoto (2008)

Summary

Introduction

During the last few years, interest in the world of cryptocurrencies has exploded, as underlined by the huge rise in Google queries concerning digital currencies. The first digital currency, named Bitcoin, dates back to 2008. It was developed in the middle of the Great Recession period based on the paper of Nakamoto (2008). The stability of the global banking system was highly strained. As pointed out by Weber (2016), Bitcoin took advantage of these circumstances and gained popularity among practitioners, academics, and the financial press. After the European sovereign debt crisis (2010–2013), the confidence in the banking system’s stability sharply reduced. The popularity of cryptocurrencies has been underlined by several works. ElBahrawy et al (2017) analyzed the statistical properties of the whole cryptocurrency market, Hileman and Rauchs (2017)

Objectives

Methods

Conclusion