Assessing the Risk Characteristics of the Cryptocurrency Market: A GARCH-EVT-Copula Approach

Bruhn, Pascal; Ernst, Dietmar

doi:10.3390/jrfm15080346

Cited by 11 publications

(7 citation statements)

References 44 publications

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“…Our review of the literature, however, found evidence that: (1) Bitcoin can be a potent hedge against stock indices at low frequencies; (2) the number of new companies accepting cryptocurrencies as payment can forecast cryptocurrency volatility; (3) Bitcoin's price volatility exhibits a "anti-leverage effect" because good news has a greater impact on volatility than bad news; and (4) bidirectional volatility spillovers in the cryptocurrency market, indicating market volatility in both directions. Our results are consistent with previous cryptocurrency reviews and add to them (Bowala, 2022;Bruhn, 2022;Guesmi, 2019;Klein, 2018;Wang, 2022;Yousaf, 2022a) To the best of our knowledge, there isn't a lot of research that addresses the volatility of cryptocurrencies, particularly using bibliometric analysis, as in our work, and compiling the numerous methods used to predict cryptocurrency volatility in a systematic way.…”

Section: Discussionsupporting

confidence: 91%

“…Options may be a vital tool for Bitcoin investors, providing important information, according to the available research (Bruhn, 2022). Results show that with a change of one percentage point in implied volatility, the premium appears to become more sensitive, whereas for a change of one percentage point in the risk-free rate across different expiration dates, the premium often stays the same.…”

Section: Discussion Of Main Findingsmentioning

confidence: 99%

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A Methodological Point Of View In A Systematic Review Of The Documentation Of The Effect Of Volatility On Cryptocurrency Investment

Zaretta

Pangestuti

2023

ICORAD

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In this study, we examine the literature that has been published between the years of 2009 and 2022, and we synthesize its contributions to the analysis of volatility during the past ten years, particularly with regard to investments in cryptocurrencies. Papers from journals with a Scopus index are included in our selections. We undertake a literature review and a bibliometric analysis using the VOS-viewer program. Our results are presented in terms of the approaches employed to simulate cryptocurrency volatility as well as in accordance with their key conclusions on the aforementioned assets' volatility and their use in managing portfolios. Our analysis indicates that the Markowitz models appear to be more popular among authors and that continue to be dominated by the GARCH expansion method and hybrid models are thought to be the best machine learning techniques. We also discover that investors can take into account cryptocurrencies because of their capacity to enhance the performance of diversified portfolios.

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Section: Discussionsupporting

confidence: 91%

Section: Discussion Of Main Findingsmentioning

confidence: 99%

A Methodological Point Of View In A Systematic Review Of The Documentation Of The Effect Of Volatility On Cryptocurrency Investment

Zaretta

Pangestuti

2023

ICORAD

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“…In this paper, we follow Börner (2020a, 2021) and use a fully automatic process to adapt a GPD that does not require any user intervention or additional parameters. This method was recently used successfully to determine tail risks in cryptocurrencies and showed advantages over other methods (Bruhn and Ernst 2022). In what follows, we use the same algorithm to determine the parameters of the GPD as the tail distribution.…”

Section: Generalized Pareto Distributionmentioning

confidence: 99%

“…Only when comparing the periods t 1 to TV is there a smoothing of the graphs compared to the graphs of the raw quantile. If the loss values above the specified confidence level are weighted with the various tail distributions and integrated, the values for the expected shortfall and thus for the mean CVaR are calculated; see (Embrechts et al 1997;McNeil et al 2015;Börner 2020b, 2021;Bruhn and Ernst 2022). Table 7 shows the results of the mean CVaR per period in comparison.…”

Section: Model and Datamentioning

confidence: 99%

Tail Risks in Corporate Finance: Simulation-Based Analyses of Extreme Values

Börner,

Ernst,

Hoffmann

2023

JRFM

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Recently, simulation-based methods for assessing company-specific risks have become increasingly popular in corporate finance. This is because modern capital market theory, with its assumptions of perfect and complete capital markets, cannot satisfactorily explain the risk situation in companies and its effects on entrepreneurial success. Through simulation, the individual risks of a company can be aggregated, and the risk effect on a target variable can be shown. The aim of this article is to investigate which statistical methods can best assess tail risks in the overall distribution of the target variables. By doing so, the article investigates whether extreme value theory is suitable to model tail risks in a business plan independent of company-specific data. For this purpose, the simulated cash flows of a medium-sized company are analyzed. Different statistical ratios, statistical tests, calibrations, and extreme value theory are applied. The findings indicate that the overall distribution of the simulated cash flows can be multimodal. In the example studied, the potential loss side of the cash flow exhibits a superimposed, well-delimitable second distribution. This tail distribution is extensively analyzed through calibration and the application of extreme value theory. Using the example studied, it is shown that similar tail risk distributions can be modeled both by calibrating the simulation data in the tail and by using extreme value theory to describe it. This creates the possibility of working with tail risks even if only a few planning data are available. Thus, this approach contributes to systematically combining risk management and corporate finance and significantly improving corporate risk management. Based on these findings, further analyses can be performed in terms of risk coverage potential and rating to improve the risk situation in a company.

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“…The risks mentioned influence the expected value of a company's cash flows, the risk-adequate discount rate, as well as the need for equity capital to cover risks in a real imperfect market. The economic risks triggered by the severe economic crises have a low probability of occurrence but a high impact on a large number of companies (for the application of extreme value theory, see Bruhn and Ernst 2022). They are thus systematic risks.…”

Section: Changes In the Economic Fundamentals Due To Global Crisesmentioning

confidence: 99%

Paradigm Shift in Finance: The Transformation of the Theory from Perfect to Imperfect Capital Markets Using the Example of Company Valuation

Ernst

Gleißner

2022

JRFM

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In the capital market and financing theory, we are currently observing major upheavals. For decades, the neoclassical paradigm has dominated in science and practice. Triggered by economic and political crises, transformations, the COVID-19 pandemic, and political instabilities, a paradigm shift is currently occurring in finance. This paradigm shift leads to models and theories that can explain imperfections in capital markets and provide decision support for managers. The aim of this article is to analyse the paradigm shift and to demonstrate it using an example of business valuation theory. We draw on the insights of the philosopher Thomas Samuel Kuhn. He vividly explains the paradigm shift in science in his major work “The Structure of Scientific Revolutions”. A paradigm shift in science always encounters resistance. The reasons for this include the strong neoclassical school in finance and the dependence on research funds. Funders expect the use of established methods and the simplicity and dissemination of the models that have prevailed so far. On the other hand, the neoclassical models are unsuitable to explain the transformation processes on financial markets. This fact has been empirically proven. We show a variety of arguments that speak clearly about this paradigm shift. Their importance clearly outweighs the reasons to continue subscribing to the old paradigm. Accordingly, new theories and models have been developed to better explain the changes in the markets. With the simulation-based business valuation, an approach has been developed that considers different degrees of market imperfections. The simulation-based valuation can also depict the special case of the neoclassical paradigm, so that all market constellations can be covered.

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Assessing the Risk Characteristics of the Cryptocurrency Market: A GARCH-EVT-Copula Approach

Cited by 11 publications

References 44 publications

A Methodological Point Of View In A Systematic Review Of The Documentation Of The Effect Of Volatility On Cryptocurrency Investment

A Methodological Point Of View In A Systematic Review Of The Documentation Of The Effect Of Volatility On Cryptocurrency Investment

Tail Risks in Corporate Finance: Simulation-Based Analyses of Extreme Values

Paradigm Shift in Finance: The Transformation of the Theory from Perfect to Imperfect Capital Markets Using the Example of Company Valuation

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