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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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    6. Jinxin Cui & Aktham Maghyereh, 2022. "Time–frequency co-movement and risk connectedness among cryptocurrencies: new evidence from the higher-order moments before and during the COVID-19 pandemic," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-56, December.
    7. Emmanuel Joel Aikins Abakah & Aviral Kumar Tiwari & Chi‐Chuan Lee & Matthew Ntow‐Gyamfi, 2023. "Quantile price convergence and spillover effects among Bitcoin, Fintech, and artificial intelligence stocks," International Review of Finance, International Review of Finance Ltd., vol. 23(1), pages 187-205, March.
    8. 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.
    9. 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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