Title: Comovement and bubbles in cryptocurrency markets
Authors: Pierangelo De Pace - Pomona College (United States) [presenting]
Jayant Rao - Claremont Graduate University (United States)
Abstract: Using daily data spanning the period between the end of April 2013 and the end of November 2018, we analyze the correlations of daily price returns for nine major cryptocurrencies and estimate their time evolutions by means of both a bivariate and multivariate modelling approach. We detect pronounced time variation in the comovement of price returns and find it to be generally increasing for all pairs of cryptocurrencies between early 2017 and late 2018. Furthermore, we adopt a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior (bubbles) in the time series of the Network Value to Transactions (NVT) ratio of six of these cryptocurrencies and show statistically significant evidence of mildly explosive dynamics in all of them. Bubbles are not necessarily synchronized across cryptocurrencies. However, in 2018, most major cryptocurrencies experience significant simultaneous distress associated with quickly rising NVT ratios. Instability and distress appear to be a steady feature of cryptocurrency markets. Our results suggest that Bitcoin may be leading the way and dragging other major cryptocurrencies.