Application of the VAR model in examining the determinants of returns of selected cryptocurrencies
DOI:
https://doi.org/10.5937/bizinfo2301045SKeywords:
Bitcoin, Ethereum, vector autoregression model, Granger causality test, Impulse response functionAbstract
The increase in the value of cryptocurrencies, market capitalization, and volume of trading on crypto exchanges resulted in a significant increase in the interest of researchers in this decentralized financial system. The two most popular cryptocurrencies today - bitcoin and ethereum - have captured the greatest attention of researchers. Given that cryptocurrency trading is similar to stock trading, the author's assumption is that their returns are determined by the price of gold and the volatility index – VIX, representing this paper's research hypothesis. Testing through vector autoregression (VAR) models, Granger causality tests, and impulse response function (IRF) shows that gold returns do not impact, unlike the VIX volatility index and Ethereum, indicating a significant relationship between cryptocurrencies bitcoin and US stock markets. On the other hand, Bitcoin returns and the volatility index cause ethereum returns, while gold returns do not.
Downloads
References
Abdelmaboud, A., Ahmed, A.I.A.; Abaker, M., Eisa, T.A.E., Albasheer, H., Ghorashi, S.A., Karim, F.K. (2022). Blockchain for IoT Applications: Taxonomy, Platforms, Recent Advances, Challenges and Future Research Directions. Electronics, 11(4), 630. https://doi.org/10.3390/electronics11040630
Acquah, H. (2012). A bootstrap approach to evaluating the performance of Akaike Information Criterion (AIC) and Bayesian Information Criterion (BIC) in selection of an asymmetric price relationship. Journal of Agricultural Sciences, 57(2), 99-110. https://doi.org/10.2298/JAS1202099D
Basher, S.A., Haug, A.A., & Sadorsky, P. (2012). Oil prices, exchange rates and emerging stock markets. Energy Economics, 34(1), 227–240. https://doi.org/10.1016/j.eneco.2011.10.005
Bouri, E., Gabauer, D., Gupta, R., & Tiwari, A. K. (2021). Volatility Connectedness of Major Cryptocurrencies: The Role of Investor Happiness. Journal of Behavioral and Experimental Finance, 30(1), 100463. https://doi.org/10.1016/j.jbef.2021.100463
Bouri, E., Gkillas, K., & Gupta, R. (2020). Trade Uncertainties and the Hedging Abilities of Bitcoin. Economic Notes, 49(3). https://doi.org/10.1111/ecno.12173
Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L.I. (2017). On the hedge and safe haven properties of Bitcoin: is it really more than a diversifier? Finance Research Letters, 20, 192–198. https://doi.org/10.1016/j.frl.2016.09.025
Casino, F., Desaklis, T.K., Patsakis, C. (2019). A systematic literature review of blockchain-based applications: Current status, classification and open issues. Telematics and Informatics, 36, 55-81. https://doi.org/10.1016/j.tele.2018.11.006
Cheah, E.-T., & Fry, J. (2015). Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, 32–36. https://doi.org/10.1016/j.econlet.2015.02.029
Chen, Y.(C.). (2021). Empirical analysis of bitcoin price. Journal of Economics and Finance, 45, 692–671. https://doi.org/10.1007/s12197-021-09549-5
Ciaian, P., Rajcaniova, M., & Kancs, D. (2016). The economics of BitCoin price formation. Applied Economics, 48(19), 1799–1815. https://doi.org/10.1080/00036846.2015.1109038
Cochrane, J.H. (2008). The dog that did not bark: a defense of return predictability. Review of Financial Studies, 21(4), 1533–1575. http://dx.doi.org/10.1093/rfs/hhm046
Conti, M., Kumar, S.E, Lal, C., & Ruj, S. (2018). A Survey on Security and Privacy Issues of Bitcoin. IEEE Communications Surveys & Tutorials, 20(4), 3416-3452. https://doi.org/10.1109/COMST.2018.2842460
Đorđević, B. (2018). Razvoj i struktura globalnog tržišta kriptovaluta. (Development and structure of the global cryptocurrency market). MEGABIZNIS, 2(2), 37-50.
Dyhrberg, A.H. (2016a). Bitcoin, gold and the dollar–a GARCH volatility analysis. Finance Research Letters, 16, 85–92. https://doi.org/10.1016/j.frl.2015.10.008
Dyhrberg, A.H. (2016b). Hedging capabilities of bitcoin. Is it the virtual gold? Finance Research Letters, 16, 139–144. https://doi.org/10.1016/j.frl.2015.10.025
Elsayed, A.H., Gozgor, G., & Yarovaya, L. (2022). Volatility and return connectedness of cryptocurrency, gold, and uncertainty: Evidence from the cryptocurrency uncertainty indices. Finance Research Letters, 47, 102732. https://doi.org/10.1016/j.frl.2022.102732
Engle, R. (2002). Dynamic conditional correlation: a simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339–350. https://www.jstor.org/stable/1392121
Estrada, J.C.S. (2017). Analyzing Bitcoin Price volatility. University of California, Berkeley.
Golez, B., & Koudijs, P. (2018). Four centuries of return predictability. Journal of Financial Economics, 127(2), 248–263. https://doi.org/10.1016/j.jfineco.2017.12.007
Ilk, N., Shang, G., Fan, S., & Zhao, J.L. (2021). Stability of Transaction Fees in Bitcoin: A Supply and Demand Perspective. MIS Quarterly, 45(2), 563-592. http://dx.doi.org/10.25300/MISQ/2021/15718
Inaba, K-I. (2020). A global look into stock market comovements. Review of World Economics, 156, 517–555. https://doi.org/10.1007/s10290-019-00370-1
Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551–1580. https://doi.org/10.2307/2938278
Katsiampa, P. (2017). Volatility estimation for Bitcoin: a comparison of GARCH models. Economics Letters, 158, 3–6. https://doi.org/10.1016/j.econlet.2017.06.023
Kirillova, O.Y., Emrlyanova, E. S. (2021). Risk Management of Derivative Financial Instruments. International Review, 1-2, 89-98. https://doi.org/10.5937/intrev2102091K
Kjærland, F., Khazal, A., Krogstad, E.A., Nordstrøm, F.B.G., & Oust, A. (2018). An Analysis of Bitcoin’s Price Dynamics. Journal of Risk and Financial Management, 11(4), 63. https://doi.org/10.3390/jrfm11040063
Kristoufek, L. (2015). What Are the Main Drivers of the Bitcoin Price? Evidence from Wavelet Coherence Analysis. PLoS ONE, 10(4), e0123923. https://doi.org/10.1371/journal.pone.0123923
Kuepper, J. (2021). Cboe Volatility Index (VIX). https://www.investopedia.com/terms/v/vix.asp (accessed: 09/11/2021).
Lawuobahsumo, K.K., Algieri, B., Iania, L., & Leccadito, A. (2022). Exploring Dependence Relationships between Bitcoin and Commodity Returns: An Assessment Using the Gerber Cross-Correlation. Commodities, 1, 34–49. https://doi.org/10.3390/commodities1010004
Lojanica, N. (2018). Macroeconomic Effects of Monetary Transmission in Serbia: SVAR Approach. Bankarstvo, 47(1), 14-31. https://doi.org/10.5937/bankarstvo1801014L
Marjanović, M., Mihailović, I., & Dimitrijević, O. (2021). Interdependence of stock exchange indices from leading capital markets: USA, Germany and Japan Stock Market. BizInfo (Blace) Journal of Economics, Management and Informatics, 12(1), 15-28. https://doi.org/10.5937/bizinfo2101015M
Malladi, R.K., & Dheeriya, P.L. (2021). Time series analysis of Cryptocurrency returns and volatilities. Journal of Economics and Finance, 45, 75–94. https://doi.org/10.1007/s12197-020-09526-4
Nasir, M.A., Huynh, T.L.D., Nguyen, S.P., & Duong, D. (2019). Forecasting cryptocurrency returns and volume using search engines. Financial Innovation, 5(2), 1-13. https://doi.org/10.1186/s40854-018-0119-8
Noga, B. (2017). Traditional and modern forms of money: euro and bitcoin. Czech Journal of Social Sciences Business and Economics, 3, 22–30.
Paule-Vianez, J., Prado-Román, C., & Gómez-Martínez, R. (2020). Economic policy uncertainty and Bitcoin. Is Bitcoin a safe-haven asset? European Journal of Management and Business Economics, 29(3), 347–363. https://doi.org/10.1108/EJMBE-07-2019-0116
Tomal, M. (2021). Modelling the Impact of Different COVID-19 Pandemic Waveson Real Estate Stock Returns and Their Volatility Using a GJR-GARCHX Approach: An International Perspective. Journal of Risk and Financial Management, 14, 1-9. https://doi.org/10.3390/jrfm14080374
Tschorsch, F., & Scheuermann, B. (2016). Bitcoin and beyond: a technical survey on decentralized digital currencies. IEEE Communications Surveys & Tutorials, 18(3), 2084–2123. https://doi.org/10.1109/COMST.2016.2535718
Van Binsbergen, J.H. and Koijen, R.S.J. (2010). Predictive regressions: a present-value approach. SSRN Electronic Journal, 1-65. http://dx.doi.org/10.2139/ssrn.968053
Van Wijk, D. (2013). What can be expected from the Bitcoin?. Working Paper, 1–20.
Wu, S. (2021). Co-movement and return spillover: Evidence from Bitcoin and traditional assets. SN Business & Economics, 1(122), 1–16. https://doi.org/10.1007/s43546-021-00126-w
CoinMarketCop. (2021, August 11). Today's Cryptocurrency Prices by Market Cap. https://coinmarketcap.com/
Cointelegraph. (2021, July 7). Daily prices and trading volumes of BTC and ETH. https://cointelegraph.com/price-indexes
World Gold Council. (2021, July 7). Gold spot prices. https://www.gold.org/goldhub/data/gold-prices
Yahoo! finance. (2021, July 7). CBOE Volatility Index. https://finance.yahoo.com/quote/%5EVIX/history?p=%5EVIX
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 BizInfo (Blace) Journal of Economics, Management and Informatics
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
