Asymmetric Bitcoin Volatility under Structural Breaks

15 Pages Posted: 12 Jun 2020 Last revised: 19 Jun 2020

See all articles by Hamed Ghoddusi

Hamed Ghoddusi

Economic Research Forum; California State Polytechnic University, San Luis Obispo

Mohammad Morovati

Khatam University

Nima Rafizadeh

HEC Montreal

Date Written: May 2, 2020

Abstract

We show that incorporating endogenously-determined structural breaks into an asymmetric GARCH model reduces volatility persistence in Bitcoin prices. We find that both good news and bad news have less impact on volatility if structural breaks are incorporated. Hence, our results may indicate that previous studies, that ignore structural breaks, might have overestimated the impact of news on Bitcoin volatility. In addition, our results suggest that Bitcoin shocks die out more quickly than previously thought. For example, the half-life of a GARCH model drops from 319 to only 34 days. Our paper provides quantitative evidence of the benefits of including both asymmetric effects and structural breaks in a GARCH model to correctly build Bitcoin volatility models.

Keywords: Bitcoin Volatility, Asymmetric GARCH, Structural Breaks

JEL Classification: C22, C50, G10

Suggested Citation

Ghoddusi, Hamed and Morovati, Mohammad and Rafizadeh, Nima, Asymmetric Bitcoin Volatility under Structural Breaks (May 2, 2020). Available at SSRN: https://ssrn.com/abstract=3589781 or http://dx.doi.org/10.2139/ssrn.3589781

Hamed Ghoddusi (Contact Author)

Economic Research Forum ( email )

Cairo
Egypt

California State Polytechnic University, San Luis Obispo ( email )

San Luis Obispo, CA 93407
United States

Mohammad Morovati

Khatam University ( email )

Tehran
Iran

Nima Rafizadeh

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

HOME PAGE: http://www.nimarafizadeh.com/

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