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Disentangling the Nonlinearity Effect in Cryptocurrency Markets During the Covid-19 Pandemic: Evidence from a Regime-Switching Approach

Author

Listed:
  • Nidhal Mgadmi

    (Faculty of Economics and Management)

  • Azza Béjaoui

    (Manouba University)

  • Wajdi Moussa

    (High Institute of Management)

Abstract

In this paper, we attempt to understand and identify the cyclical fluctuations in cryptocurrency markets. To this end, we apply the Markov-Switching approach on daily prices of 17 selected digital currencies. This model allows us to capture the nonlinear structure in cryptocurrencies’ prices. The empirical results clearly show potential difference(s) among digital currencies when they react to the varying levels of the pandemic's severity. The existence of two distinguishable states and each state seems to be characterized by different features of market cycle’s phase for each cryptocurrency. So, the Covid19 pandemic affects asymmetrically the different market phases of digital currencies. Such findings can have insightful portfolios implications.

Suggested Citation

  • Nidhal Mgadmi & Azza Béjaoui & Wajdi Moussa, 2023. "Disentangling the Nonlinearity Effect in Cryptocurrency Markets During the Covid-19 Pandemic: Evidence from a Regime-Switching Approach," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(3), pages 457-473, September.
    • Handle: RePEc:kap:apfinm:v:30:y:2023:i:3:d:10.1007_s10690-022-09384-6
    DOI: 10.1007/s10690-022-09384-6
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    More about this item

    Keywords

    Digital currencies; Health crisis; Markov switching;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G1 - Financial Economics - - General Financial Markets

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