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Pattern and determinants of tail-risk transmission between cryptocurrency markets: new evidence from recent crisis episodes

Author

Listed:
  • Aktham Maghyereh

    (United Arab Emirates University)

  • Salem Adel Ziadat

    (Al-Ahliyya Amman University Jordan
    University of Stirling)

Abstract

The main objective of this study is to investigate tail risk connectedness among six major cryptocurrency markets and determine the extent to which investor sentiment, economic conditions, and economic uncertainty can predict tail risk interconnectedness. Combining the Conditional Autoregressive Value-at-Risk (CAViaR) model with the time-varying parameter vector autoregressive (TVP-VAR) approach shows that the transmission of tail risks among cryptocurrencies changes dynamically over time. During crises and significant events, transmission bursts and tail risks change. Based on both in- and out-of-sample forecasts, we find that the information contained in investor sentiment, economic conditions, and uncertainty includes significant predictive content about the tail risk connectedness of cryptocurrencies.

Suggested Citation

  • Aktham Maghyereh & Salem Adel Ziadat, 2024. "Pattern and determinants of tail-risk transmission between cryptocurrency markets: new evidence from recent crisis episodes," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-34, December.
    • Handle: RePEc:spr:fininn:v:10:y:2024:i:1:d:10.1186_s40854-023-00592-1
    DOI: 10.1186/s40854-023-00592-1
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    More about this item

    Keywords

    Tail-risk connectedness; Cryptocurrency; CAViaR; TVP-VAR; Predictability;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G1 - Financial Economics - - General Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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