Regime changes in Bitcoin GARCH volatility dynamics
Finance Research Letters, Volume 29, June 2019, Pages 266-271
12 Pages Posted: 30 May 2018 Last revised: 21 Jun 2019
Date Written: June 8, 2018
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: Suggested Citation