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Negative bubbles and shocks in cryptocurrency markets

Author

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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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    More about this item

    Keywords

    Bitcoin; Ripple; Cryptocurrencies; Bubbles; Negative bubbles; Econophysics;
    All these keywords.

    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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