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Conditional heteroskedasticity in crypto-asset returns

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  • Shaw, Charles

Abstract

In a recent contribution to the financial econometrics literature, Chu et al. (2017) provide the first examination of the time-series price behaviour of the most popular cryptocurrencies. However, insufficient attention was paid to correctly diagnosing the distribution of GARCH innovations. When these data issues are controlled for, their results lack robustness and may lead to either underestimation or overestimation of future risks. The main aim of this paper therefore is to provide an improved econometric specification. Particular attention is paid to correctly diagnosing the distribution of GARCH innovations by means of Kolmogorov type non-parametric tests and Khmaladze's martingale transformation. Numerical computation is carried out by implementing a Gauss-Kronrod quadrature. Parameters of GARCH models are estimated using maximum likelihood. For calculating P-values, the parametric bootstrap method is used. Further reference is made to the merits and demerits of statistical techniques presented in the related and recently published literature.

Suggested Citation

  • Shaw, Charles, 2018. "Conditional heteroskedasticity in crypto-asset returns," MPRA Paper 90437, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:90437
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    File URL: https://mpra.ub.uni-muenchen.de/90437/1/MPRA_paper_90437.pdf
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    References listed on IDEAS

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    Cited by:

    1. Chappell, Daniel, 2018. "Regime heteroskedasticity in Bitcoin: A comparison of Markov switching models," MPRA Paper 90682, University Library of Munich, Germany.
    2. Shazia Salamat & Niu Lixia & Sobia Naseem & Muhammad Mohsin & Muhammad Zia-ur-Rehman & Sajjad Ahmad Baig, 2020. "Modeling cryptocurrencies volatility using GARCH models: a comparison based on Normal and Student's T-Error distribution," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 7(3), pages 1580-1596, March.

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    More about this item

    Keywords

    Autoregressive conditional heteroskedasticity (ARCH); generalized autoregressive conditional heteroskedasticity (GARCH); market volatility; nonlinear time series; Khmaladze transform.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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