Disentangling the Nonlinearity Effect in Cryptocurrency Markets During the Covid-19 Pandemic: Evidence from a Regime-Switching Approach

In this paper, we attempt to understand and identify the cyclical fluctuations in cryptocurrency markets. To this end, we apply the Markov-Switching approach on daily prices of 17 selected digital currencies. This model allows us to capture the nonlinear structure in cryptocurrencies’ prices. The em...

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Bibliographic Details
Published in:Asia-Pacific financial markets 2023-09, Vol.30 (3), p.457-473
Main Authors: Mgadmi, Nidhal, Béjaoui, Azza, Moussa, Wajdi
Format: Article
Language:English
Subjects:
Bull markets
COVID-19
Currency
Digital currencies
Econometrics
Economic Theory/Quantitative Economics/Mathematical Methods
Economics and Finance
Finance
Hedging
International Economics
Literature reviews
Macroeconomics/Monetary Economics//Financial Economics
Nonlinearity
Original Research
Pandemics
Prices
Switching
Volatility
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Summary:In this paper, we attempt to understand and identify the cyclical fluctuations in cryptocurrency markets. To this end, we apply the Markov-Switching approach on daily prices of 17 selected digital currencies. This model allows us to capture the nonlinear structure in cryptocurrencies’ prices. The empirical results clearly show potential difference(s) among digital currencies when they react to the varying levels of the pandemic's severity. The existence of two distinguishable states and each state seems to be characterized by different features of market cycle’s phase for each cryptocurrency. So, the Covid19 pandemic affects asymmetrically the different market phases of digital currencies. Such findings can have insightful portfolios implications.
ISSN:1387-2834
1573-6946
DOI:10.1007/s10690-022-09384-6