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Extreme tail network analysis of cryptocurrencies and trading strategies

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  • Shahzad, Syed Jawad Hussain
  • Bouri, Elie
  • Ahmad, Tanveer
  • Naeem, Muhammad Abubakr

Abstract

We examine the median- and tail-based return interdependence among cryptocurrencies under both normal and extreme market conditions. Using daily data and combining the LASSO technique with quantile regression within a framework of network analysis, the main results show the following: Interdependence is higher at tails than at medians, especially the right tail. Bitcoin is not the leading risk transmitter or receiver, but this role is taken by smaller cryptocurrencies. The volatilities of market, size, and momentum drive return connectedness and clustering coefficients under both normal and extreme market conditions. Finally, profitable trading strategies are constructed and evaluated.

Suggested Citation

  • Shahzad, Syed Jawad Hussain & Bouri, Elie & Ahmad, Tanveer & Naeem, Muhammad Abubakr, 2022. "Extreme tail network analysis of cryptocurrencies and trading strategies," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001872
    DOI: 10.1016/j.frl.2021.102106
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    References listed on IDEAS

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    Cited by:

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    9. Ahmed, Mohamed Shaker & El-Masry, Ahmed A. & Al-Maghyereh, Aktham I. & Kumar, Satish, 2024. "Cryptocurrency volatility: A review, synthesis, and research agenda," Research in International Business and Finance, Elsevier, vol. 71(C).
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    11. Scharnowski, Matthias & Scharnowski, Stefan & Zimmermann, Lukas, 2023. "Fan tokens: Sports and speculation on the blockchain," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 89(C).
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    14. Boubaker, Sabri & Karim, Sitara & Naeem, Muhammad Abubakr & Rahman, Molla Ramizur, 2024. "On the prediction of systemic risk tolerance of cryptocurrencies," Technological Forecasting and Social Change, Elsevier, vol. 198(C).
    15. Weige Huang & Xiang Gao, 2023. "Forecasting Bitcoin Futures: A Lasso-BMA Two-Step Predictor Selection for Investment and Hedging Strategies," SAGE Open, , vol. 13(1), pages 21582440231, January.
    16. Yousaf, Imran & Pham, Linh & Goodell, John W., 2024. "Dynamic spillovers between leading cryptocurrencies and derivatives tokens: Insights from a quantile VAR approach," International Review of Financial Analysis, Elsevier, vol. 94(C).
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    18. Kim, Hyeonoh & Ha, Chang Yong & Ahn, Kwangwon, 2022. "Preference heterogeneity in Bitcoin and its forks' network," Chaos, Solitons & Fractals, Elsevier, vol. 164(C).

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