Outliers and Time-Varying Jumps in the Cryptocurrency Markets

Anupam Dutta,Elie Bouri

doi:10.3390/jrfm15030128

Anupam Dutta, Elie Bouri

Open Access

https://doi.org/10.3390/jrfm15030128

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Abstract

We examine the presence of outliers and time-varying jumps in the returns of four major cryptocurrencies (Bitcoin, Ethereum, Ripple, Dogecoin, Litecoin), and a broad cryptocurrency index (CCI30). The results indicate that only Bitcoin returns are contaminated with outliers. Time-varying jumps are present in Bitcoin, Litecoin, Ripple, and the cryptocurrency index. Notably, the presence of jumps in Bitcoin is significant after correcting for outliers. The main findings point to a price instability in some major cryptocurrencies and thereby the importance of accounting for large shocks and time-varying jumps in modelling volatility in the debatable cryptocurrency markets.

Highlights

Cryptocurrencies are decentralised payment systems involving technological innovation called blockchain
Cryptocurrencies are characterised by extreme return volatility that has been the subject of volatility modelling (Chu et al 2017; Katsiampa 2017; Tiwari et al 2019; Walther et al 2019; Mostafa et al 2021), especially using GARCH processes that are capable of parameterising higher order dependence and time-evolution of conditional volatility
Large cryptocurrencies such as Ethereum, Ripple, Litecoin, and Dogecoin3 have attracted significant attention from institutional investors and business communities. Their return volatility tends to exceed that of the largest cryptocurrency, Bitcoin, which makes them relevant candidates for the analysis of outliers and time-varying jumps

Summary

Introduction

Cryptocurrencies are decentralised payment systems involving technological innovation called blockchain. There is no empirical evidence of the presence of outliers in leading cryptocurrencies and the scarce academic literature available considers jump behaviour in the Bitcoin market only, overlooking the time-varying nature of jumps Large cryptocurrencies such as Ethereum, Ripple, Litecoin, and Dogecoin have attracted significant attention from institutional investors and business communities. Their return volatility tends to exceed that of the largest cryptocurrency, Bitcoin (see Table 1), which makes them relevant candidates for the analysis of outliers and time-varying jumps.

Data and Methods

Outlier Detection Method

The GARCH-Jump Process

Time-Varying Jumps

Conclusions