Exploring the Dynamic links between ICE BofA Yield Curves and First Bitcoin Capital Corp. Volatility using DECO-GARCH

Abstract

This paper examines the time-varying conditional correlations between FIRST BITCOIN CAP and ICE BofA Sterling Zero Coupon markets. We apply ten bivariate DECO-GARCH models in order to capture potential contagion effects between the markets for the period 2007-2020. Empirical results reveal contagion during the under investigation period regarding the ten bivariate models, showing potential volatility transmission channels among the markets. Findings have crucial implications for policymakers who provide regulations for the above derivative markets and for investors, who invest long-term into FIRST BITCOIN CAP.

Keywords: DECO-GARCH, Bitcoin market, financial contagion, equicorrelations, zero coupon market

JEL Classification: C58, C61, G11, G15