Financial Contagion and Volatility Spillover: an exploration into Bitcoin Future and FOREX Future Markets
Keywords:
Bitcoin future market, DCC-GARCH model, dynamic conditional correlations, financial contagion, FOREX future markets
Abstract
This paper examines the time-varying conditional correlations between Bitcoin future market and five FOREX future markets. A sixvariate dynamic conditional correlation (DCC) GARCH model is applied in order to capture potential contagion effects between the markets for the period 2017-2019. Empirical results reveal contagion during the under investigation period regarding the one sixvariate model, showing potential volatility transmission channels among the future markets. Findings have crucial implications for policymakers who provide regulations for the above derivative markets.
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References
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20 Bouri E, Rangan G, Aviral K T, David R. Does bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters 2017; 23; 87–95.
21 Demir E, Giray G, Chi K M L, Samuel, A V. Does economic policy uncertainty predict the bitcoin returns? an empirical investigation. Finance Research Letters 2018; 26; 145–49.
22 H, Pedro G. Bitcoin futures: An effective tool for hedging cryptocurrencies. Finance Research Letters 2019; 33.
23 Bollerslev T. Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics 1986; 31(3); 307-327.
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26.McLeod A I, Li W K. Diagnostic checking ARMA time series models using squared-residuals autocorrelations. Journal of Time Series Analysis 1983; 4(4); 269-273.
2 Tsiaras K. Dynamic relationship between future FOREX markets in the post Global Financial Crisis. Journal of Quantitative Methods 2020; 4(1); 30-52.
3 Forbes K, Rigobon R. No contagion, Only Interdependence: Measuring Stock Market CoMovements. Journal of Finance 2002; 57; 2223-2261.
4 Liu R, Shanfeng W, Zili Z, Xuejun Z. Is the introduction of futures responsible for the crash of bitcoin? Finance Research Letters 2019; 34.
5 Kim W J L, Kyungwon K. The effects of the introduction of bitcoin futures on the volatility of bitcoin returns. Finance Research Letters 2019; 33; 101204.
6 Aalborg H Aarhus P M, de Vries, J E. What can explain the price, volatility and trading volume of bitcoin? Finance Research Letters 2019; 29; 255–65.
7 Ardia D, Keven B, Maxime R. Regime changes in bitcoin garch volatility dynamics. Finance Research Letters 2019; 29; 266–71.
8 Bouoiyour J, Refk S. What does bitcoin look like? Annals of Economics and Finance 2015; 16; 449–92.
9 Bouri E, Peter M, Georges A, David R, Hagfors L I. On the hedge and safe haven properties of bitcoin: Is it really more than a diversifier? Finance Research Letters 2017; 20; 192–98.
10 Darné C, Darné A, Darné Ο. Volatility estimation for bitcoin: Replication and robustness. International Economics 2019; 157; 23–32.
11 Dyhrberg A H. Bitcoin, gold and the dollar—A garch volatility analysis. Finance Research Letters 2016; 16; 85–92.
12 Katsiampa P. Volatility estimation for bitcoin: A comparison of garch models. Economics Letters 2017; 158; 3–6.
13 Wu S, Mu T, Zhongyi Y, Abdelkader D. Does gold or bitcoin hedge economic policy uncertainty? Finance Research Letters 2019; 31; 171–78.
14 Bouoiyour J, Refk S. Bitcoin: A beginning of a new phase. Economics Bulletin 2016; 36; 1430–40.
15 Yermack D. Is bitcoin a real currency? An economic appraisal. Handbook of Digital Currency 2015; 31–43.
16 Dastgir S, Ender D, Gareth D, Giray G, Chi, K M L. The causal relationship between bitcoin attention and bitcoin returns: Evidence from the copula-based granger causality test. Finance Research Letters 2019; 28; 160–64.
17 Kristoufek L. Bitcoin meets google trends and wikipedia: Quantifying the relationship between phenomena of the internet era. Scientific Reports 2013; 3; 3415.
18 Panagiotidis T, Thanasis S, Orestis V. The effects of markets, uncertainty and search intensity on bitcoin returns. International Review of Financial Analysis 2019; 63; 220–42.
19 Dyhrberg A H. Hedging capabilities of bitcoin. Is it the virtual gold? Finance Research Letters 2016; 16; 139–44.
20 Bouri E, Rangan G, Aviral K T, David R. Does bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters 2017; 23; 87–95.
21 Demir E, Giray G, Chi K M L, Samuel, A V. Does economic policy uncertainty predict the bitcoin returns? an empirical investigation. Finance Research Letters 2018; 26; 145–49.
22 H, Pedro G. Bitcoin futures: An effective tool for hedging cryptocurrencies. Finance Research Letters 2019; 33.
23 Bollerslev T. Generalized autoregressive conditional heteroskedasticity. Journal of Econometrics 1986; 31(3); 307-327.
24 Engle R F. Dynamic conditional correlation-a simple class of multivariate GARCH models. Journal of Business & Economic Statistics 2002; 20; 339-350.
25 Hosking J R M. The Multivariate Portmanteau Statistic. Journal of the American Statistical Association 1980; 75(371); 602-608.
26.McLeod A I, Li W K. Diagnostic checking ARMA time series models using squared-residuals autocorrelations. Journal of Time Series Analysis 1983; 4(4); 269-273.
Published
2021-02-24
Section
Economics (Microeconomics, Macroeconomics, International Economics)
