Regime Changes in Bitcoin GARCH Volatility Dynamics

Finance Research Letters, Volume 29, June 2019, Pages 266-271

6 Pages Posted: 30 May 2018 Last revised: 6 Jun 2021

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Keven Bluteau

Université de Sherbrooke - Faculty of Administration

Maxime Rüede

University of Neuchatel - Institute of Financial Analysis

Date Written: June 8, 2018

Abstract

We test the presence of regime changes in the GARCH volatility dynamics of Bitcoin log-returns using Markov-switching GARCH (MSGARCH) models. We also compare MSGARCH to traditional single-regime GARCH specifications in predicting one-day ahead Value-at-Risk (VaR). The Bayesian approach is used to estimate the model parameters and to compute the VaR forecasts. We find strong evidence of regime changes in the GARCH process and show that MSGARCH models outperform single-regime specifications when predicting the VaR.

Keywords: Bitcoin, GARCH, MSGARCH, Value-at-Risk, Backtesting, Bayesian

JEL Classification: C5, C22, G1

Suggested Citation

Ardia, David and Bluteau, Keven and Rüede, Maxime, Regime Changes in Bitcoin GARCH Volatility Dynamics (June 8, 2018). Finance Research Letters, Volume 29, June 2019, Pages 266-271, Available at SSRN: https://ssrn.com/abstract=3180830 or http://dx.doi.org/10.2139/ssrn.3180830

David Ardia (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Keven Bluteau

Université de Sherbrooke - Faculty of Administration ( email )

Sherbrooke, Québec J1K 2R1
Canada

Maxime Rüede

University of Neuchatel - Institute of Financial Analysis ( email )

Pierre-a-Mazel,7
Neuchatel, CH-2000
Switzerland

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