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Negative bubbles and shocks in cryptocurrency markets

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  • Fry, John
  • Cheah, Eng-Tuck

Abstract

In this paper we draw upon the close relationship between statistical physics and mathematical finance to develop a suite of models for financial bubbles and crashes. The derived models allow for a probabilistic and statistical formulation of econophysics models closely linked to mainstream financial models. Applications include monitoring the stability of financial systems and the subsequent policy implications. We emphasise the timeliness of our contribution with an application to the two largest cryptocurrency markets: Bitcoin and Ripple. Results shed new light on emerging debates over the nature of cryptocurrency markets and competition between rival digital currencies.

Suggested Citation

  • Fry, John & Cheah, Eng-Tuck, 2016. "Negative bubbles and shocks in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 343-352.
  • Handle: RePEc:eee:finana:v:47:y:2016:i:c:p:343-352
    DOI: 10.1016/j.irfa.2016.02.008
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:finana:v:55:y:2018:i:c:p:35-49 is not listed on IDEAS
    2. repec:eee:japwor:v:46:y:2018:i:c:p:56-63 is not listed on IDEAS
    3. repec:eee:ecmode:v:64:y:2017:i:c:p:74-81 is not listed on IDEAS
    4. Elie Bouri & Rangan Gupta & David Roubaud, 2018. "Herding Behaviour in the Cryptocurrency Market," Working Papers 201834, University of Pretoria, Department of Economics.
    5. Kazeem Isah & Ibrahim D. Raheem, 2018. "The Hidden Predictive Power of Cryptocurrencies: Evidence from US Stock Market," Working Papers 056, Centre for Econometric and Allied Research, University of Ibadan.
    6. Elie Bouri & Rangan Gupta & Amine Lahiani & Muhammad Shahbaz, 2017. "Testing for Asymmetric Nonlinear Short- and Long-Run Relationships between Bitcoin, Aggregate Commodity and Gold Prices," Working Papers 201760, University of Pretoria, Department of Economics.
    7. repec:eee:finlet:v:23:y:2017:i:c:p:87-95 is not listed on IDEAS
    8. Zura Kakushadze & Jim Kyung-Soo Liew, 2018. "CryptoRuble: From Russia with Love," Papers 1801.05760, arXiv.org.
    9. Bouri, Elie & Gupta, Rangan & Tiwari, Aviral Kumar & Roubaud, David, 2017. "Does Bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions," Finance Research Letters, Elsevier, vol. 23(C), pages 87-95.
    10. repec:eee:ecolet:v:165:y:2018:i:c:p:28-34 is not listed on IDEAS
    11. Urquhart, Andrew, 2016. "The inefficiency of Bitcoin," Economics Letters, Elsevier, vol. 148(C), pages 80-82.
    12. repec:gam:jrisks:v:5:y:2017:i:3:p:37-:d:105098 is not listed on IDEAS

    More about this item

    Keywords

    Bitcoin; Ripple; Cryptocurrencies; Bubbles; Negative bubbles; Econophysics;

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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