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The Volatility Structure of Cryptocurrencies: The Comparison of GARCH Models

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  • İbrahim Korkmaz KAHRAMAN, Habib KÜÇÜKŞAHİN, Emin ÇAĞLAK

Abstract

Forecasting models based on the assumption that returns are normally distributed do not perform sufficiently on shallow markets. These models are more likely to fail in the estimation of the extreme points that can be reached especially at high volatility markets, and this situation is led to investors in predicting volatility. In the volatility forecasting of crypto money, which is seen as an alternative investment tool for the financial investors, single volatility models such as, ARCH, GARCH, T-GARCH, GARCH-M, E-GARCH, and I-GARCH and long memory models (AP-GARCH and C-GARCH) was utilized. In addition, the most suitable model was tried to be tested among the models used for volatility estimation. In this context, the price data of Bitcoin, Ethereum and Ripple cryptocurrency with the highest market value in the crypto money market have been utilized between 24/08/2016-07/05/2018. According to the results of the research, for Bitcoin and Ethereum, the volatility effect of the shocks is permanent and the effect of the positive shocks is more than that of the negative shocks, whereas for Ripple, the volatility effect of the shocks is transient and the passivity of the volatility is short.

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  • İbrahim Korkmaz KAHRAMAN, Habib KÜÇÜKŞAHİN, Emin ÇAĞLAK, 2019. "The Volatility Structure of Cryptocurrencies: The Comparison of GARCH Models," Fiscaoeconomia, Tubitak Ulakbim JournalPark (Dergipark), issue 2.
    • Handle: RePEc:fis:journl:190202
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    References listed on IDEAS

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    More about this item

    Keywords

    Bitcoin; Ethereum; Ripple; Cryptocurrency; GARCH Models; Volatility;
    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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