Cryptocurrencies Meet Inflation Theory

26 Pages Posted: 11 Sep 2018

See all articles by Thanos Andrikopoulos

Thanos Andrikopoulos

Hull University Business School (HUBS)

Robert Hudson

Hull University Business School (HUBS)

Saeed Akbar

Hull University Business School (HUBS)

Darius Saftoiu

Hull University Business School (HUBS)

Date Written: August 18, 2018

Abstract

Using concepts from inflation theory, this study examines the relationship between the returns and volatility of cryptocurrencies. We take Bitcoin, Ethereum, Litecoin and Ripple as the four most popular cryptocurrencies in the market and analyse the relationship between their returns and volatility through the application of GARCH models. The results suggest that Bitcoin and Litecoin behave as a currency subject to inflation showing a causal relationship from returns to volatility [and not the other way around]. In contrast, the results for Ethereum and Ripple show that the causation runs from volatility to returns. Moreover, the volatility of each cryptocurrency is affected by the other three cryptocurrency returns. A panel cointegration analysis shows evidence of a strong cointegration relationship in the cryptocurrency prices.

Keywords: Cryptocurrencies, Inflation, Inflation uncertainty, Volatility, GARCH

JEL Classification: E31, G12, G14, G15

Suggested Citation

Andrikopoulos, Athanasios and Hudson, Robert and Akbar, Saeed and Saftoiu, Darius, Cryptocurrencies Meet Inflation Theory (August 18, 2018). Available at SSRN: https://ssrn.com/abstract=3243459 or http://dx.doi.org/10.2139/ssrn.3243459

Athanasios Andrikopoulos (Contact Author)

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom
+44 (0) 1482 463310 (Phone)

HOME PAGE: http://www2.hull.ac.uk/hubs/about-us/our-staff/allstaff/a/andrikopoulos_a.aspx

Robert Hudson

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Saeed Akbar

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Darius Saftoiu

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

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