Bubbles and Crashes in Cryptocurrencies: Interdependence, Contagion, or Asset Rotation?

Posted: 11 Oct 2021 Last revised: 7 Aug 2023

See all articles by Md Shahedur R. Chowdhury

Md Shahedur R. Chowdhury

Arkansas Tech University-College of Business

Damian S. Damianov

Durham University Business School

Ahmed H. Elsayed

Durham University Business School

Date Written: September 20, 2021

Abstract

Using a quantile vector autoregressive model to capture return dynamics in extreme market conditions, we find that the cryptocurrency market exhibits a high level of market connectedness. Bitcoin is a net transmitter of return spillovers during busts and a net receiver during booms. Analysis of the timing of bubble and crash periods uncovers the presence of interdependence and contagion effects. There is only limited evidence for asset rotation, and it involves mostly Ripple. Bubbles in Ripple occur simultaneously or are followed by crashes in other major cryptocurrencies which highlights its unique role as a portfolio diversifier in extreme market conditions.

Keywords: Cryptocurrencies, Interdependence, Contagion, Rotation, Bubbles; Crashes

JEL Classification: C32; F3; G15

Suggested Citation

Chowdhury, Md Shahedur R. and Damianov, Damian S. and Elsayed, Ahmed Hamed, Bubbles and Crashes in Cryptocurrencies: Interdependence, Contagion, or Asset Rotation? (September 20, 2021). Finance Research Letters, Vol. 46, No. B, 2022, Available at SSRN: https://ssrn.com/abstract=3939759 or http://dx.doi.org/10.2139/ssrn.3939759

Md Shahedur R. Chowdhury

Arkansas Tech University-College of Business ( email )

Russellville, AR 72801
United States

Damian S. Damianov

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Ahmed Hamed Elsayed (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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