Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/286353 
Year of Publication: 
2023
Series/Report no.: 
IES Working Paper No. 24/2023
Publisher: 
Charles University in Prague, Institute of Economic Studies (IES), Prague
Abstract: 
Cryptocurrencies exhibit unique statistical and dynamic properties compared to those of traditional financial assets, making the study of their volatility crucial for portfolio managers and traders. We investigate the volatility connectedness dynamics of a representative set of eight major crypto assets. Methodologically, we decompose the measured volatility into positive and negative components and employ the time-varying parameters vector autoregression (TVP-VAR) framework to show distinct dynamics associated with market booms and downturns. The results suggest that crypto connectedness reflects important events and exhibits more variable and cyclical dynamics than those of traditional financial markets. Periods of extremely high or low connectedness are clearly linked to specific events in the crypto market and macroeconomic or monetary history. Furthermore, existing asymmetry from good and bad volatility indicates that information about market downturns spills over substantially faster than news about comparable market surges. Overall, the connectedness dynamics are predominantly driven by fundamental crypto factors, while the asymmetry measure also depends on macro factors such as the VIX index and the expected inflation.
Subjects: 
Volatility
Dynamic connectedness
Asymmetric effects
Cryptocurrency
JEL: 
C58
G10
C36
Document Type: 
Working Paper

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