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The Importance of Jumps and Structural Breaks in the Long Memory Volatility of Cryptocurrency Prices

한영욱
한국금융공학회 (Korean Association of Financial Engineering)|2023.03|金融工學硏究 (Korean Journal of Financial Engineering)|제22권 제1호|pp. 167-192|DOI 10.35527/kfedoi.2023.22.1.007

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참고문헌

키워드

FIGARCHStructural BreaksAdaptive FIGARCHDaily Cryptocurrency PricesJumpsLong Memory VolatilityPoisson Jump-FIGARCH
주제분류경영학

초록

This paper deals with the long memory volatility in the daily returns of four cryptocurrency prices (Bitcoin, Dogecoin, Ethereum and XRP) taking into account the importance of structural breaks and jumps. By using three different types of fractional integration models (FIGARCH, Adaptive FIGARCH and Poisson jump-FIGARCH), this paper shows statistical evidence that the daily returns of the cryptocurrency prices display the significant long memory volatility process with the order of integration. Also, this paper finds apparent decreases in the degree of the long memory volatility in the cryptocurrency prices after accounting for the structural breaks and the jumps. Thus, this paper provides strong evidence for the importance of the structural breaks and the jumps in the long memory volatility process of the cryptocurrency prices, and suggests that market participants need to factor the long memory volatility process of the cryptocurrency prices in their valuation, risk-adjusted portfolio, forecasting and market efficiency models.

Abstract

This paper deals with the long memory volatility in the daily returns of four cryptocurrency prices (Bitcoin, Dogecoin, Ethereum and XRP) taking into account the importance of structural breaks and jumps. By using three different types of fractional integration models (FIGARCH, Adaptive FIGARCH and Poisson jump-FIGARCH), this paper shows statistical evidence that the daily returns of the cryptocurrency prices display the significant long memory volatility process with the order of integration. Also, this paper finds apparent decreases in the degree of the long memory volatility in the cryptocurrency prices after accounting for the structural breaks and the jumps. Thus, this paper provides strong evidence for the importance of the structural breaks and the jumps in the long memory volatility process of the cryptocurrency prices, and suggests that market participants need to factor the long memory volatility process of the cryptocurrency prices in their valuation, risk-adjusted portfolio, forecasting and market efficiency models.

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