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Volatility co-movement between Bitcoin and Ether

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  • Katsiampa, Paraskevi

Abstract

Using a bivariate Diagonal BEKK model, this paper investigates the volatility dynamics of the two major cryptocurrencies, namely Bitcoin and Ether. We find evidence of interdependencies in the cryptocurrency market, while it is shown that the two cryptocurrencies' conditional volatility and correlation are responsive to major news. In addition, we show that Ether can be an effective hedge against Bitcoin, while the analysis of optimal portfolio weights indicates that Bitcoin should outweigh Ether. Understanding volatility movements and interdependencies in cryptocurrency markets is important for appropriate investment management, and our study can thus assist cryptocurrency users in making more informed decisions.

Suggested Citation

  • Katsiampa, Paraskevi, 2019. "Volatility co-movement between Bitcoin and Ether," Finance Research Letters, Elsevier, vol. 30(C), pages 221-227.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:221-227
    DOI: 10.1016/j.frl.2018.10.005
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Ether; Cryptocurrency; Diagonal BEKK; Multivariate GARCH; Conditional volatility;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets

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