International Journal of Engineering Research in Electronics and Communication Engineering

Volatility and Spillover Risks in Cryptocurrency Market: A VAR and GARCH Processes Perspective

Author : Sandeep S. Saini ¹ Suraj N. Pandey ² Riya I. Jha ³

Date of Publication :26th August 2021

Abstract: In this analysis; we study the four major cryptocurrency returns that are Bitcoin, Ethereum, XRP, and Litecoin, where the dynamics of volatility spillover are observed for a span of 7 years â€“ 2013 to 2020; wherein the total number of sample observations collected and analyzed were 10,953 (Data Points). This paper investigates the behaviour and responses of cryptocurrency assets with respect to each other by using VAR Granger Causality and Bayesian VAR Model, we find that Ethereum and Litecoin prove to be independent in the cryptocurrency market. Whereas Bitcoin, XRP, and Binance coins tend to be the recipient of the spillover effect. Our study indicates that there is a conditional variance in these cryptocurrency assets and Bitcoin & Binance coins are more adversely affected due to the bad news in the market, leading to rigorous fluctuations in volatility. While approaching for the analysis, we conducted a GARCH (1,1), T-ARCH, and E-GARCH analysis along with a univariate GARCH model which we used to estimate and quantify the nature of volatility spillovers. Given the overall cryptocurrency bull-run in the first quarter of 2017-18 we have analyzed the saturation of the cryptocurrency markets; where investors sought to invest in Bitcoin and Ethereum, vehemently and this resulted in extremely high volatility during the December 17â€™ period.

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