Nonlinear Autoregressive Distributed Lag Approach: An Application on the Connectedness between Bitcoin Returns and the Other Ten Most Relevant Cryptocurrency Returns

Frank S. Skinner,María de la O González,Francisco Jareño

doi:10.3390/math8050810

Frank S. Skinner, María de la O González + Show 1 more

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https://doi.org/10.3390/math8050810

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Abstract

This article examines the connectedness between Bitcoin returns and returns of ten additional cryptocurrencies for several frequencies—daily, weekly, and monthly—over the period January 2015–March 2020 using a nonlinear autoregressive distributed lag (NARDL) approach. We find important and positive interdependencies among cryptocurrencies and significant long-run relationships among most of them. In addition, non-Bitcoin cryptocurrency returns seem to react in the same way to positive and negative changes in Bitcoin returns, obtaining strong evidence of asymmetry in the short run. Finally, our results show high persistence in the impact of both positive and negative changes in Bitcoin returns on most of the other cryptocurrency returns. Thus, our model explains about 50% of the other cryptocurrency returns with changes in Bitcoin returns.

Highlights

The importance of the cryptocurrency market has continued to increase, even in recent years
This paper aims to study both long- and short-run interdependencies between returns of Bitcoin and the rest of the recent most important cryptocurrencies that is Ethereum, XRP, Bitcoin Cash, Tether, Bitcoin SV, Litecoin, EOS, Binance coin, and Tezos applying a nonlinear autoregressive distributed lag (NARDL) approach
To the best of knowledge, this is the first study that explores the co-movement between Bitcoin and the remaining top ten cryptocurrencies selected according to the largest market capitalization, by using the NARDL approach to evaluate both long- and short-run asymmetries

Summary

Objectives

The main aim of this research is to explore potential long- and short-run connectedness between Bitcoin returns and the rest of the recent (March 2020) top 10 cryptocurrency returns. This paper aims to study both long- and short-run interdependencies between returns of Bitcoin and the rest of the recent most important cryptocurrencies that is Ethereum, XRP, Bitcoin Cash, Tether,

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