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Exogenous Drivers of Cryptocurrency Volatility - A Mixed Data Sampling Approach To Forecasting

Author

Listed:
  • Thomas Walther
  • Tony Klein

Abstract

We apply the GARCH-MIDAS framework to forecast the daily, weekly, and monthly volatility of four highly capitalized Cryptocurrencies (Bitcoin, Etherium, Litecoin, and Ripple) 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 ?nd that the Global Real Economic Activity outperforms all other economic and ?nancial drivers under investigation. Only the average forecast combination results in lower loss functions. This indicates that the information content of exogenous factors is time-varying and the model averaging approach diversi?es the impact of single drivers.

Suggested Citation

  • Thomas Walther & Tony Klein, 2018. "Exogenous Drivers of Cryptocurrency Volatility - A Mixed Data Sampling Approach To Forecasting," Working Papers on Finance 1815, University of St. Gallen, School of Finance.
    • Handle: RePEc:usg:sfwpfi:2018:15
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    References listed on IDEAS

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    Cited by:

    1. Andrada-Félix, Julián & Fernandez-Perez, Adrian & Sosvilla-Rivero, Simón, 2020. "Distant or close cousins: Connectedness between cryptocurrencies and traditional currencies volatilities," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 67(C).
    2. Trucíos, Carlos, 2019. "Forecasting Bitcoin risk measures: A robust approach," International Journal of Forecasting, Elsevier, vol. 35(3), pages 836-847.
    3. Luca Mungo & Silvia Bartolucci & Laura Alessandretti, 2023. "Cryptocurrency co-investment network: token returns reflect investment patterns," Papers 2301.02027, arXiv.org, revised Jan 2023.
    4. Elie Bouri & Konstantinos Gkillas & Rangan Gupta & Christian Pierdzioch, 2021. "Forecasting Realized Volatility of Bitcoin: The Role of the Trade War," Computational Economics, Springer;Society for Computational Economics, vol. 57(1), pages 29-53, January.

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    More about this item

    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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