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Risks in Major Cryptocurrency Markets: Modeling the Dual Long Memory Property and Structural Breaks

Author

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  • Zhuhua Jiang

    (Division of Chinese Foreign Affairs and Commerce, Hankuk University of Foreign Studies, Seoul 02450, Republic of Korea)

  • Walid Mensi

    (Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat 123, Oman
    Department of Finance and Accounting, University of Tunis El Manar and IFGT, Tunis 248, Tunisia)

  • Seong-Min Yoon

    (Department of Economics, Pusan National University, Busan 46241, Republic of Korea)

Abstract

This study estimates the effects of the dual long memory property and structural breaks on the persistence level of six major cryptocurrency markets. We apply the Bai and Perron structural break test, Inclán and Tiao’s iterated cumulative sum of squares (ICSS) algorithm, and the fractionally integrated generalized autoregressive conditional heteroscedasticity (FIGARCH) model, with different distributions. The results show that long memory and structural breaks characterize the conditional volatility of cryptocurrency markets, confirming our hypothesis that ignoring structural breaks leads to an underestimation of the persistence of volatility modeling. The ARFIMA-FIGARCH model, with structural breaks and a skewed Student - t distribution, fits the cryptocurrency market’s price dynamics well.

Suggested Citation

  • Zhuhua Jiang & Walid Mensi & Seong-Min Yoon, 2023. "Risks in Major Cryptocurrency Markets: Modeling the Dual Long Memory Property and Structural Breaks," Sustainability, MDPI, vol. 15(3), pages 1-15, January.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:3:p:2193-:d:1045871
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