Regime Changes in Bitcoin GARCH Volatility Dynamics

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

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