Cross-exchange Crypto Risk: A High-frequency Dynamic Network Perspective

36 Pages Posted: 27 Dec 2022 Last revised: 10 Apr 2024

See all articles by Yifu Wang

Yifu Wang

International Research Training Group 1792 "High Dimensional Nonstationary Time Series", Humboldt-Universität zu Berlin; Southwestern University of Finance and Economics (SWUFE)

Wanbo Lu

Southwestern University of Finance and Economics (SWUFE)

Min-Bin Lin

Karlsruhe Institute of Technology - Institute AIFB

Rui Ren

Humboldt University of Berlin

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute; Academy of Economic Studies, Bucharest

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2022

Abstract

Cross-exchange crypto trading presents inherent risks, particularly for centralized exchanges.
Investors observe exacerbating crypto volatility and counterparty risk and would like to quantify these elements of crypto trades. The multiple exchanges require a multivariate view on the structures of risk spillover across exchanges. Here, a Multivariate Heterogeneous AutoRegression (MHAR) model is designed and analyzed, accommodating the stylized facts of crypto markets, including 24/7 trading and the long-memory effect on return variations. The proposed MHAR approach clearly reveals the intensity of interconnectedness among exchanges during extreme events, e.g., the Bitcoin market. Additionally, one observes extremely volatile eigenvector centralities of Futures Exchange Ltd (FTX), suggesting potential implications for its bankruptcy. Furthermore, portfolios that account for the dynamics of partial correlations or eigenvector centralities offer promising results in terms of risk measures.

Keywords: Partial correlation network, high-frequency data, cryptocurrency, cross exchanges, FTX, risk spillover

JEL Classification: C15, C51, G20

Suggested Citation

Wang, Yifu and Lu, Wanbo and Lin, Min-Bin and Ren, Rui and Härdle, Wolfgang Karl, Cross-exchange Crypto Risk: A High-frequency Dynamic Network Perspective (December 21, 2022). Available at SSRN: https://ssrn.com/abstract=4308825 or http://dx.doi.org/10.2139/ssrn.4308825

Yifu Wang (Contact Author)

International Research Training Group 1792 "High Dimensional Nonstationary Time Series", Humboldt-Universität zu Berlin ( email )

Dorotheenstraße 1
Berlin, 10117
Germany

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Wanbo Lu

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Min-Bin Lin

Karlsruhe Institute of Technology - Institute AIFB ( email )

Building 05.20 KIT-Campus South
Karlsruhe, D-76128
Germany

Rui Ren

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Academy of Economic Studies, Bucharest ( email )

Bucharest
Romania

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