An Investigative Analysis of Volatility in the Cryptocurrency Market

Abstract

The growing global fascination with cryptocurrencies has sparked heightened interest, driven by their pronounced market volatility. This particular study endeavors to assess the risk and rewards associated with four prominent cryptocurrencies, while also delving into an examination of their interrelationships and fluctuation patterns. The investigation is based on daily closing prices spanning from January 1, 2017, to June 30, 2022. To unravel the spillover and asymmetrical repercussions of volatility, we employ various models from the GARCH family, most notably the DCC GARCH and EGARCH models. In addition, Granger causality is harnessed to uncover any causal connections among these digital assets. The findings underscore a noteworthy spillover phenomenon between Bitcoin and Ethereum, the two foremost cryptocurrencies boasting the maximum market capitalization. This spillover effect manifests as symmetric volatility impacts, setting them apart from Litecoin and RIPPLE.