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Time-frequency co-movement of cryptocurrency return and volatility: Evidence from wavelet coherence analysis

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  • Qiao, Xingzhi
  • Zhu, Huiming
  • Hau, Liya

Abstract

This article examines the co-movement relationship among representative cryptocurrencies from the perspectives of returns and volatility. Wavelet coherence and the correlation network are introduced to explore the interdependence of cryptocurrencies, and then risk reduction and downside risk reduction are used to test the hedging effects of Bitcoin on others at different time frequencies. The empirical results provide evidence of co-movement and hedging effects. Additionally, positive correlations between Bitcoin and other cryptocurrencies exist on short-to-medium investment horizons. Moreover, both Bitcoin's returns and its volatility are ahead of other cryptocurrencies at low frequencies. In addition, a hedging effect across Bitcoin against other cryptocurrencies is more obvious in the long run. Furthermore, Bitcoin has hedging effects on other cryptocurrencies according to time-frequency horizons.

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  • Qiao, Xingzhi & Zhu, Huiming & Hau, Liya, 2020. "Time-frequency co-movement of cryptocurrency return and volatility: Evidence from wavelet coherence analysis," International Review of Financial Analysis, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finana:v:71:y:2020:i:c:s105752192030185x
    DOI: 10.1016/j.irfa.2020.101541
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    More about this item

    Keywords

    Cryptocurrency market; Co-movement; Wavelet decomposition; Portfolio diversification;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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