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Co-movement in crypto-currency markets: evidences from wavelet analysis

Author

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  • Anoop S Kumar

    (University of Kerala)

  • Taufeeq Ajaz

    (Narsee Monjee Institute of Management Studies)

Abstract

We study the time varying co-movement patterns of the crypto-currency prices with the help of wavelet-based methods; employing daily bilateral exchange rate of four major crypto-currencies namely Bitcoin, Ethereum, Lite and Dashcoin. First, we identify Bitcoin as potential market leader using Wavelet multiple correlation and Cross correlation. Further, Wavelet Local Multiple Correlation for the given crypto-currency prices are estimated across different time-scales. From the results, it is found that that the correlation follows an aperiodic cyclical nature, and the crypto-currency prices are driven by Bitcoin price movements. Based on the results obtained, we suggest that constructing a portfolio based on crypto-currencies may be risky at this point of time as the other crypto-currency prices are mainly driven by Bitcoin prices, and any shocks in the latter is immediately transformed to the former.

Suggested Citation

  • Anoop S Kumar & Taufeeq Ajaz, 2019. "Co-movement in crypto-currency markets: evidences from wavelet analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-17, December.
    • Handle: RePEc:spr:fininn:v:5:y:2019:i:1:d:10.1186_s40854-019-0143-3
    DOI: 10.1186/s40854-019-0143-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Co-movement; Crypto-currencies; Wavelets;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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