BitCoin's Roller Coaster: Systemic Risk and Market Sentiment

10 Pages Posted: 11 Jul 2016

See all articles by Panagiota Makrychoriti

Panagiota Makrychoriti

Birkbeck ,University of London

George Moratis

Athens University of Economics and Business

Date Written: July 11, 2016

Abstract

This study investigates the determinants of Bitcoin exchange rate over the period Feb. 2013-Apr. 2016 within a VAR framework. We are mainly driven by the narrow knowledge of this high volatile cryptocurrency’s behavior. We ask the question how and to what extent the overall credit and liquidity conditions affect Bitcoin. A novel feature of this paper is its important implications for the investors in order to understand Bitcoin’s determinants. Also, the empirical investigation is conducted by means of VAR model that permits the analysis of multi-directional relationships in a dynamic context. Our findings indicate that investor sentiment is the only important Bitcoin determinant among other factors which capture the overall economic situation, while spillover effects measured by the spillover matrix introduced by Diebold and Yilmaz (2009) indicate that Bitcoin appears to be a “lonely boat” that is mostly affected by “idiosyncratic” factors. Hence, it is very important for investors to gain knowledge on Bitcoin’s special characteristics, while paying attention to the investors sentiment.

Keywords: Cryptocurrency, Bitcoin, Systemic risk, Vector Autoregressive models

JEL Classification: C35, E44, F31, G15

Suggested Citation

Makrychoriti, Panagiota and Moratis, George, BitCoin's Roller Coaster: Systemic Risk and Market Sentiment (July 11, 2016). Available at SSRN: https://ssrn.com/abstract=2808096 or http://dx.doi.org/10.2139/ssrn.2808096

Panagiota Makrychoriti

Birkbeck ,University of London ( email )

WC1E 7HX
London, Malet St,
United Kingdom

George Moratis (Contact Author)

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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