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Volatility and dependence in cryptocurrency and financial markets: a copula approach

  • Jinan Liu and Apostolos Serletis EMAIL logo
Published/Copyright: January 10, 2023
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Studies in Nonlinear Dynamics & Econometrics
From the journal Studies in Nonlinear Dynamics & Econometrics Volume 28 Issue 1

Abstract

We use a semiparametric GARCH-in-Mean copula model to examine the volatility dynamics and tail dependence between cryptocurrency markets and financial markets. We do not find any statistically significant tail dependence between the financial and cryptocurrency markets, but we find lower tail dependence between Bitcoin and stock returns. There is lower tail dependence among Bitcoin, Ethereum, and Litecoin, and the lower tail dependence between Ethereum and Litecoin returns is the strongest. The GARCH-in-Mean model shows that the uncertainty effect on cryptocurrency returns is not statistically significant, while uncertainty has a negative and statistically significant effect on Bitcoin returns. The fact that there is no tail dependence between cryptocurrency and the interest rate or the effective exchange rate of U.S. dollar suggests that cryptocurrency could offer safe haven, defined as an asset that is uncorrelated with stocks and bonds.

Keywords: Bitcoin price; copula; cryptocurrency price; GARCH-in-Mean model
JEL Classification: C58; F37; G17
Corresponding author: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Canada, E-mail:

  1. Author contribution: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.

  2. Research funding: None declared.

  3. Conflict of interest statement: The authors declare no conflicts of interest regarding this article.

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Supplementary Material

This article contains supplementary material (https://doi.org/10.1515/snde-2022-0029).

Received: 2022-03-15
Revised: 2022-12-05
Accepted: 2022-12-17
Published Online: 2023-01-10

© 2022 Walter de Gruyter GmbH, Berlin/Boston

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  2. Research Articles
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  8. Volatility and dependence in cryptocurrency and financial markets: a copula approach
https://doi.org/10.1515/snde-2022-0029
Keywords for this article
Bitcoin price; copula; cryptocurrency price; GARCH-in-Mean model

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Bayesian VARs and prior calibration in times of COVID-19
  4. On testing for bubbles during hyperinflations
  5. Estimating uncertainty spillover effects across euro area using a regime dependent VAR model
  6. Score-driven location plus scale models: asymptotic theory and an application to forecasting Dow Jones volatility
  7. High dimensional threshold model with a time-varying threshold based on Fourier approximation
  8. Volatility and dependence in cryptocurrency and financial markets: a copula approach
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