Exogenous Drivers of Bitcoin and Cryptocurrency Volatility – A Mixed Data Sampling Approach to Forecasting

26 Pages Posted: 27 Jun 2018 Last revised: 19 Sep 2019

See all articles by Thomas Walther

Thomas Walther

Utrecht University - School of Economics

Tony Klein

Queen's University Belfast - Queen's Management School

Elie Bouri

Université Saint Esprit de Kaslik (USEK)

Date Written: September 1, 2019

Abstract

We apply the GARCH-MIDAS framework to forecast the daily, weekly, and monthly volatility of five highly capitalized Cryptocurrencies (Bitcoin, Etherium, Litecoin, Ripple, and Stellar) as well as the Cryptocurrency index CRIX. Based on the prediction quality, we determine the most important exogenous drivers of volatility in Cryptocurrency markets. We find that the Global Real Economic Activity outperforms all other economic and financial drivers under investigation. We also show that the Global Real Economic Activity provides superior volatility predictions for both, bull and bear markets. In addition, the average forecast combination results in low loss functions. This indicates that the information content of exogenous factors is time-varying and the model averaging approach diversifies the impact of single drivers.

Keywords: Bitcoin, Cryptocurrencies, GARCH, Mixed Data Sampling, Volatility

JEL Classification: C10, C58, G11

Suggested Citation

Walther, Thomas and Klein, Tony and Bouri, Elie, Exogenous Drivers of Bitcoin and Cryptocurrency Volatility – A Mixed Data Sampling Approach to Forecasting (September 1, 2019). University of St.Gallen, School of Finance Research Paper No. 2018/19; QMS Research Paper 2018/02; Journal of International Financial Markets, Institutions and Money, 2019. Available at SSRN: https://ssrn.com/abstract=3192474 or http://dx.doi.org/10.2139/ssrn.3192474

Thomas Walther (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

HOME PAGE: http://www.thomas-walther.info

Tony Klein

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

HOME PAGE: http://www.tony-klein.info

Elie Bouri

Université Saint Esprit de Kaslik (USEK) ( email )

KASLIK
Lebanon

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