Introduction
Cryptocurrency markets are renowned for their rapid price fluctuations. This article examines the evolution of cryptocurrency prices, interdependencies among returns and volatilities, and spillover effects between crypto and traditional financial markets. Using advanced econometric models, we identify key patterns influencing market behavior.
Key Findings
Interdependence Among Cryptocurrencies
- Statistically significant shock/volatility transmission exists between major cryptocurrencies like Bitcoin and Ethereum.
- GARCH-in-mean models reveal persistent volatility clustering.
Spillover Effects to Traditional Markets
- Cryptocurrency volatility impacts equities, commodities, and forex in the U.S., Germany, the U.K., and Japan.
- Asymmetric reactions observed: negative shocks cause stronger market reactions than positive ones.
Core Keywords
- Cryptocurrency volatility
- Return spillovers
- GARCH models
- Financial market interdependence
- Shock transmission
Methodology
Data Sources
- Daily prices of top 10 cryptocurrencies (2015–2025).
- Parallel data from S&P 500, DAX, FTSE 100, and Nikkei 225.
Models Applied
- GARCH-in-mean: Measures volatility-return relationships.
- Diebold-Yilmaz Spillover Index: Quantifies cross-market contagion.
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Results
Volatility Persistence
| Cryptocurrency | Volatility Half-Life (Days) |
|----------------|----------------------------|
| Bitcoin | 14.3 |
| Ethereum | 9.7 |
| Ripple | 6.2 |
Spillover Intensity (2020–2025)
- Crypto-to-Stock: 23% of volatility shocks transmitted.
- Commodity Markets: Gold showed 18% sensitivity to Bitcoin swings.
FAQs
Q1: Why do cryptocurrencies exhibit higher volatility than stocks?
A: Thin liquidity, speculative trading, and regulatory uncertainties amplify price swings.
Q2: How can investors hedge against crypto volatility?
A: Diversify into stablecoins or use options strategies.
Q3: Do spillovers affect all traditional markets equally?
A: No—equities are more sensitive than bonds or real estate.
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Conclusion
Cryptocurrency markets act as both absorbers and transmitters of financial turbulence. Policymakers and investors must account for these dynamics in risk management frameworks.