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Exogenous drivers of Bitcoin and Cryptocurrency volatility – A mixed data sampling approach to forecasting

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  • Walther, Thomas
  • Klein, Tony
  • Bouri, Elie

Abstract

We apply the GARCH-MIDAS framework to forecast the daily, weekly, and monthly volatility of five highly capitalized Cryptocurrencies (Bitcoin, Etherium, Litecoin, Ripple, and Stellar) as well as the Cryptocurrency index CRIX. Based on the prediction quality, we determine the most important exogenous drivers of volatility in Cryptocurrency markets. We find that the Global Real Economic Activity outperforms all other economic and financial drivers under investigation. We also show that the Global Real Economic Activity provides superior volatility predictions for both, bull and bear markets. In addition, the average forecast combination results in low loss functions. This indicates that the information content of exogenous factors is time-varying and the model averaging approach diversifies the impact of single drivers.

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  • Walther, Thomas & Klein, Tony & Bouri, Elie, 2019. "Exogenous drivers of Bitcoin and Cryptocurrency volatility – A mixed data sampling approach to forecasting," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:intfin:v:63:y:2019:i:c:s1042443119302446
    DOI: 10.1016/j.intfin.2019.101133
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    Keywords

    Bitcoin; Cryptocurrencies; GARCH; Mixed data sampling; Volatility;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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