Discontinuous movements and asymmetries in cryptocurrency markets

GKILLAS, K., KATSIAMPA, Paraskevi, KONSTANTATOS, C. and TSAGKANOS, A. (2022). Discontinuous movements and asymmetries in cryptocurrency markets. European Journal of Finance, 1-25.

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Official URL: https://www.tandfonline.com/doi/full/10.1080/13518...
Open Access URL: https://www.tandfonline.com/doi/pdf/10.1080/135184... (Published version)
Link to published version:: https://doi.org/10.1080/1351847X.2021.2015416
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    Abstract

    This paper proposes a novel asymmetric jump model for modeling interactions in discontinuous movements in asset prices. Given the jump behavior and high volatility levels in cryptocurrency markets, we apply our model to cryptocurrencies to study the impact of various types of jumps occurring in one cryptocurrency’s price process on the discontinuity component of the realized volatility of other cryptocurrencies. Our model also allows us to assess the impact of co-jumps. Using high-frequency data to compute the daily realized volatility, we show that downside, upside, and small jumps observed in cryptocurrencies negatively affect the jump component of other cryptocurrencies’ realized volatility, while large jumps have the opposite effect. We further find significant asymmetric effects between small and large as well as between downside and upside jumps for several cryptocurrencies. Moreover, we find evidence of co-jumping behavior, which can trigger future jumps. The practical implications of our findings are also discussed. Finally, we extend our analysis to study the effects of jumps in mainstream financial assets on cryptocurrencies’ jump behavior and find that upside and downside jumps observed in the S&P 500 index negatively impact cryptocurrency jumps.

    Item Type: Article
    Uncontrolled Keywords: Bitcoin; cryptocurrency; asymmetry; volatility; jump; jump-diffusion model; 1502 Banking, Finance and Investment; Finance
    Identification Number: https://doi.org/10.1080/1351847X.2021.2015416
    Page Range: 1-25
    SWORD Depositor: Symplectic Elements
    Depositing User: Symplectic Elements
    Date Deposited: 08 Mar 2022 14:47
    Last Modified: 08 Mar 2022 14:47
    URI: http://shura.shu.ac.uk/id/eprint/29852

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